Rentals Director Sara Hawkins explains that property remains an attractive investment but good research is essential…
Despite changing legislation, many still see property as an attractive long-term investment at a time of low interest rates and volatile stock markets. In fact, buy-to-let can definitely still pay-off but it is vital to do things right and that starts with your research.
Record low mortgage rates are often justifying the figures for investors at the moment. But, beware of low rates. These will rise one day and you need to know that your numbers will still add up. There is also the added complication that the tax regime is changing with interest relief being axed and replaced with a 20% tax credit. Landlords now also have to pay an extra 3% stamp duty on property purchases.
There are no guarantees with property investment but if you’ve got the deposit money (usually 25%) then bricks and mortar can offer a great long-term return. Here are the key issues that you need to think through:
1. Know your market
Make sure you are familiar with the risks, aswell as the benefits. Do your homework on the best areas for rentals, making sure that you choose a location that is popular with tenants and offers good transport links. Take the test – would you live there yourself?
2. Property type
As a general rule, three bedroom properties tend to attract long-term tenants who will settle with their families over a longer period of time due to good schools and family ties. Modern kitchens and bathrooms are essential as is a low maintenance garden. Aim for a light, airy and neutrally decorated property. The better the property, the better the tenant so it is worth taking extra time to identify the right investment.
3. Talk to others
Take advice, speak to friends who have invested in property and make sure you listen to what others have to say. You need to go in to this with your eyes wide open.
The more knowledge you have, the better the chance of your investment paying off.
4. Do the maths
Calculate your purchase costs, understand your maintenance charges and take advice on the likely tax implications. You need to make sure your investment will work, even if the property sits empty for a month or two.
5. Know your yield
You need to know the annual rent as a percentage of the purchase price. Rent should be the key return for buy-to-let. Workout your annual return on investment by subtracting your annual mortgage costfrom your annual rent and then working this sum out as a percentage of the deposit you put down. Anything beyond 5% is a good return.
6. Hands-on or off?
Buying a property is only the first step. Will you rent it out yourself or get an agent to do so? Being a landlord can become a full time job – advertising the property, drawing up tenancy agreements, securing the monthly rental payments and finding good tradesmen when things go wrong all take time.
7. Look after your tenant
Good tenants want good landlords so make sure you keep up with maintenance and build a good personal relationship with your tenants. Look after your tenant and they will look after your property!
8. Stay legal
Legislation is changing and it is now a legal requirement to register with Rent Smart Wales.
Sara Hawkins is a Fellow of ARLA and is accredited under the Landlord Accreditation Wales Scheme.
By PJC Homes on February 20th, 2017