By Andy Phillips, commercial director at Knight Knox – a Manchester-based property investment consultancy
With Brexit and Article 50 officially triggered, we can look back on the predictions of economic disaster forecast during the UK’s EU Referendum last year. Despite these predictions, the UK is yet to experience the drastic changes to our economy and to the property market that were anticipated. Instead, we’ve experienced labour market growth, unemployment rate improvements and household income acceleration – along with house price increases and a continued rise in rents.
Although the rental market faced a mass of changes during 2016, from stamp duty surges to Wear and Tear Allowance changes, residential property in the UK remains resilient and continues to hold its position as a sound investment, whatever the financial climate.
With a growing population, tenant numbers climbing and an evident shift towards a PRS-centric landscape, the UK is set to experience a surge in demand for rental properties over the next few years, so it’s little wonder that investors are looking towards buy-to-let to strengthen their portfolio.
Buy-to-let is a highly attractive investment, particularly when compared to low savings rates and stock market volatility, offering a stable income and long-term returns, but whether you’re a veteran landlord or just starting out, it’s equally important to check off a few things to maximise your return and minimise risks.
- Test yourself
How much do you know about the market? Do your research and familiarise yourself with an understanding of buy-to-let and the UK rental market. You’ll need to know the current status of the market before investing in order to weigh up the return. Also it’s advisable to conduct due diligence on the responsibilities of being a landlord and what this entails. For example, if you don’t have time to fully manage your investment property, be sure to have a professional ARLA-accredited lettings and management company in place to operate on your behalf. However, be sure to factor in the fees involved, which can range between 8 and 10 per cent of the property’s rental returns.
- Location
Location is key, so find a property that is in a reputable location with high tenant demand and high-performing yields. Be sure to look at the performance of the local housing market in the last few years, as well as assessing future development in the area, as this could often be indicative of future growth.
- Ideal tenant
Find out what kind of tenant you want to attract and use this as a starting point. It could be students, young professionals or families. Put yourself in their shoes and consider their different needs, and ensure your property fulfils their expectations. For example, if you’re targeting families, a big garden and being close to schools is desirable, while students and young professionals benefit from close proximity to major transport links.
- Calculate
Do rough calculations of how much it will cost to buy and manage the property you are considering. Much like knowing your responsibilities as a landlord, it’s important to consider the financial risks associated with buy-to-let from potential void periods, for example.
If you are unfamiliar with the market or unsure of any of these elements, be sure to speak to an industry professional like an estate agent or a buy-to-let specialist for expert help and advice.
Here is an outline of the dos and don’ts for landlords and aspiring property investors.
Do:
- Seek specialist advice from estate agents or property professionals on local market demands. You may have done your research on the market in the UK as a whole, but don’t assume that all areas follow the same rule.
- Ensure you have a sound financial plan in place, not just for the purchase but also for a contingency fund. It is advisable to save two to three months’ rental income for maintenance work, so include this in any preliminary calculations.
- Furnish and decorate the property to a high standard, but keep it neutral in order to attract the best quality tenants quickly.
- Use an ARLA-accredited lettings agent that has necessary insurance like Client Money Protection and Professional Indemnity Insurance. ARLA trains agencies to have high standards, keeping them up to date with the latest legal and regulatory requirements.
Don’t:
- Treat the property like it’s your home – personal tastes shouldn’t cloud your judgement, so ensure that your property meets market requirements.
- Purchase a property that may require a lot of maintenance and upkeep. Maintenance work is a necessary evil for any landlord, but choosing property wisely can help to reduce the workload, save you time and avoid eating into your profits.
- Subcontract any due maintenance work in your property to friends and family. Tenants expect and require a full management service by someone who knows what they are doing, so make sure you have a trustworthy property manager on hand.
- Leave all documentation to the last minute – ensure you have all the appropriate paperwork checked over by a professional and signed by both yourself and your tenant.
- Try to cut corners by furnishing your property cheaply – all furniture in rental accommodation has to comply with the Furniture and Furnishings Regulations.
Whether you are an ‘accidental landlord’ or a professional buy-to-let investor, investing in property requires careful consideration to ensure you are making the right move at the right time.
The potential returns in the buy-to-let market are evident but – as with any investment, be it stocks and shares, government bonds or crowdfunding – having a clear and carefully thought-out strategy is essential in order to achieve the desired yields and capital gains from your asset.