Market conditions have rarely been more challenging. For many landlords and property investors in the market, the risk/reward of buy-to-let investing has never felt tougher. Recent data from the NRLA laid bare the realities. While 65% of landlords say they have increased rents – usually an indication of a vibrant investment market – only 12% of them intend to continue to expand their portfolios. 3 in 10 intend to downsize.
As the NRLA’s Ben Beadle reminds us tirelessly, this is bad news for landlords, but arguably even more so for tenants. If the net total of landlords in the market continues to decrease, the private rental market will deteriorate as a whole.
It is important to be upfront and honest about the new realities of buy-to-let with investors. The era of the dinner party landlord is over. For many ‘accidental landlords’, surprise possession of an investment property is less of a blessing, and more of a curse.
Yet, while the outlook feels grim, the fundamentals are still there performing strongly. Property investment is a resilient sector that has always been rich in potential rewards. Right now, however, it takes more time, resources and patience to reach them.
First and foremost, successful buy-to-let investing comes down to picking the right property. Changing horses halfway through the race isn’t an option once you’re encumbered with an unsuitable property that won’t rent and won’t sell.
But how can you or your client be sure they’ve found the right property for their own set of requirements, unique to everybody else’s? At GetGround, landlords’ preoccupations with sourcing property are fast becoming our biggest consideration. We break it down for them with these simple rules:
1. Location
We’ve all heard it before but location really is everything. Is there good tenant demand in that location for the sort of property you’ve found? Are there historically good yield, value appreciation, and transaction volumes in this area for the sort property you have found?
Take for instance, properties in Manchester or Birmingham - the two UK cities that fight it out to be the country’s ‘Second City’ after London; there, many companies are setting up large offices encouraging staff to relocate to these areas, supporting demand and capital growth.
Additionally, is there a quality property management business nearby with experience in your sort of property and the sort of tenants you are looking to attract?
2. Energy rating
With the government’s minimum EPC thresholds around the corner, what remedial energy efficiency measures have been done, when and what to standard? What is the property’s EPC and if it’s less than a Grade C, what’s left to be done to improve it and how much will that cost?
3. Don't pay above the odds
A simple check with Land Registry – it only costs £3 – will tell you the last price the property was sold for and when. Is it a fair price and in keeping with similar properties in the same location? As a rule of thumb, it’s wise to be wary if the property was sold without any major refurbishment in the last six months for 10% higher or lower than the value you are looking at.
4. Is there work to do?
Is the property of a standard internally and externally that’ll make the sorts of tenants you want to attract likely to want to rent it? If not yet, how much will the fixes and adaptations cost? A good seller or agent shouldn’t oppose you taking in a local builder to ask for an estimate. Also, if there is work to be done, do you have time and funds on your side to get it all done before you need to get it rented out?
5. What's the status with the tenant?
If the property is currently let, ask the seller or agent for proof of tenancy and a list of historic rental payments. Assuming the tenant is a good one, how long is their lease and do they intend or wish to stay on? If they’re less than good, does their lease allow for an early termination?
6. Is the property mortgaged?
It is worth finding out if your seller has a mortgage. If they don’t - find out why not. It could be that the house, for various reasons, is deemed unmortgageable, which could be problematic for you if finance is required, or problematic when you come to sell if potential buyers need finance too.
If the property is mortgaged, enquire whether the seller has an early repayment charge to factor into their sale. This could prove a block later down the line when the seller encounters sale costs they had not accounted for.
To speak with me or one of our property consultants, book in a free meeting so we can help you find the perfect buy-to-let property for you.
This article was originally published in Property Reporter
