How To Choose A Buy-To-Let Property Investment
How to Choose a Buy To Let Property Investment

Tuesday 25 May 2021

Sometimes the hardest part about property investing is feeling like you don’t know where to start. There are a lots of decisions to make with property investing such as the location to invest, your target tenant, the minimum yield you’d accept and if you’re investing mainly for capital growth or yield.

Below we will break down some key steps and key decisions you need to make when investing, to make it a little more manageable.

What’s my budget?

There are multiple aspects to think about with your budget. Firstly, investing in a buy-to-let property will require you to put down a deposit if you are buying through a mortgage. A buy-to-let mortgage requires a minimum of a 25% deposit of the purchase price and the interest rates are typically higher than that of a owner-occupier mortgage.

The amount of rent you’re likely to get will determine the amount you can borrow on your mortgage. Lenders typically want this to cover between 125% and 145% of your mortgage payments.

Finally, a budget should be set aside for maintenance of the property and any void periods. You don’t want to be caught out with no money left to cover these or your investment could soon be a hindrance rather than a money making vehicle.

What’s classed as a sound investment?

This all depends on your property investing goals. Are you investing for long-term capital growth or more focused on a high rental return? Generally speaking an area likely to have long term capital growth would have a higher purchase price than one with a high rental return, so this will be down your budget as mentioned in point 1.

It’s not completely unheard of to have both good capital growth and a high rental return, but it’s usually one or the other or they are both just average.

What is a rental yield?

Yields can seem confusing but they’re a great way to determine if the investment is a good one. The rental yield is the measure of ‘return’ or how much you earn from a property investment.

Rental yields are calculated as a percentage of the property’s value. As a general rule of thumb, ERE Property look for developments that provide net yields of 5% or more. But whether this is achievable depends on where you buy and the rental costs in that area. For example, bigger cities like Manchester & Birmingham have lower yields than this due to the purchase prices. London also provides a much lower yield, but people like to invest in the capital because they feel confident that the capital growth will be good.

What tenants should I look for?

This is heavily dependent on the type of property you are investing in – houses or apartments, and also the location. For example houses located with more green space around and parking available would most likely appeal to families. Whereas apartments would attract tenants who are likely to be young professionals who want the city life with good transport connections and to be close to work. If it was the student target market you were looking at the location would be key – close to universities, the library and local bars.

The lettings process can be complicated as there are many rules and regulations you must adhere to, or else you may be facing a hefty fine and potentially legal action also. Although it will be an additional cost, sometimes getting a professional lettings agent like ERE Lettings can make your property investment much more hassle free.

How do I find the right location suited for my needs?

Again, this all depends on how ‘hands on’ you want to be, your budget and how many properties you want in your portfolio. It’s recommended to start close to home, since you’ll know which areas are good and which to avoid. However, if you live in an area with a high purchase price that you won’t be able to afford or it will mean you can’t buy as many investment properties as you would like then looking further afield might be necessary.

In which case, do your research and take your time with this, visit the area and look at the regeneration plans, figures and what tenant type the area will attract. Rightmove House Price Index is a good place to start for historical and projected capital growth of a region. The Zoopla House Price Index is also very good as you can put in an exact postcode to look at current prices. For rental projections, Home Let is a great place to look. Finally, ERE Property post informative and educational articles on the blog twice a week with lots of valuable information to help you with your property investment journey.

How do I buy an investment property?

The benefits of going through an investment agent like ERE Property is that we have direct relationships with developers that you wouldn’t otherwise find on portals like Rightmove or Zoopla. With our selling power we can also negotiate good discounts for our investors that may not be seen otherwise. Another benefit is that a lot of the hard work is taken away from the searching of the property and the due diligence as we do this on your behalf, making it a more hands off investment.

However, if you would like to go down the traditional route and buy through a local estate agent, or find a private seller or even buy at auction. There are many ways to find a property investment.

How To Choose A Buy-To-Let Property Investment
How To Choose A Buy-To-Let Property Investment

If you would like to learn more about investing in property, contact one of our Investment Directors and they will be delighted to have a talk with you.

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