Are you new to property investment?
Not started your property business yet?
Then you need to read this.
Getting the right start in property investment is essential. If you make a mess of your first deal then it is not the end of the world, but it will be a lot harder to motivate yourself to carry on.
You need to get the basics right to succeed in property investment. In this post I will share those basics with you to set you on your way.
I started my property investment business with a buy to let strategy. I recommend that you do the same.
What is Buy to Let?
A buy to let strategy is where you invest in a property with the intention of renting it out to provide a monthly income. There are several ways that you can approach buy to let. These include:
- Investing in a property and renovating it so that it meets all the required standards and is appealing to tenants
- Investing in a property suitable for renting out to students in a university area
- Investing in a large property and then converting this to an HMO (house of multiple occupancy)
- Investing in a property that already has paying tenants that you can take over as a “going concern”
There are other buy to let scenarios. For your first property investment venture I would not recommend an HMO strategy as this is a lot of work and there are a lot of regulations that you need to comply with.
You can move to HMO’s when you have some experience in the buy to let market.
Know the Market
What is the buy to let market like where you are? My property business is in the United Kingdom and there is a huge demand for rental properties. Rents keep increasing and now there are many opportunities to acquire good properties at a reasonable price. These properties appeal to prospective tenants.
But in the UK there have been a number of changes to the law that make buy to let tougher than it used to be. The most significant of these changes is the abolition of tax relief on buy to let mortgages and the increase in stamp duty.
You need to know the condition of your buy to let market. Answer these questions:
- Is there sufficient demand for rental properties?
- What are the average rent prices?
- Do rents increase each year?
- What are the current laws surrounding buy to let?
- Are there any pending changes to the law that could seriously hamper your buy to let success?
You need to answer all of these questions before you even start to look for suitable investment properties.
Know your Numbers
OK so you have established that the market conditions are right for you to follow a buy to let investment strategy.
The next thing to do is get a grip on the numbers.
It is absolutely vital that you are on top of every aspect of your property investment business. You need to draw up cash flow plans and budgets and stick to them. You need to create spreadsheets that will show you your profitability for different rental pricing and the cost of acquiring a property.
Make sure that everything is in your cash flow statement. Don’t forget any of the costs such as solicitor’s fees, stamp duty, renovation costs and so on. Make your financial plan as accurate as possible and adjust it where necessary to reflect reality.
Let’s assume that you are looking at a few properties to invest in for buy to let in different areas. Having a good financial model that will help you to decide how much you need to pay for a property to turn the profit that you require is critical.
A lot of newcomers will overpay for a property out of frustration. They are keen to get started and find it really tough to turn down one property after another because it doesn’t fit their financial model. Don’t fall into this trap.
Invest your money in a savings account so that it is making you money while you hang on for that sweet deal. They are out there believe me. There are a lot of other property investors so there is always going to be competition. This is a good thing as it tells you that property investment is still worth pursuing.
Where and What?
You have no doubt heard the term “location, location, location” before because it is so important. When you are looking for a buy to let property you need to choose the right location.
Start looking where you live if the market conditions are right. Most areas have good and bad elements. People that are looking for a rental property will be considering the following:
- Is it a good area?
- Is the property close to public transport links?
- Is there a lot of traffic?
- Are there good schools, colleges, universities in the area?
- Are there shops nearby?
- Is there parking for their car?
- Is the area quiet?
- Are there employment opportunities in the area?
You need to be thinking about all of these things and more. Before you decide on an area find out if there is a high demand for renting. Also find out what the turnover of tenants is. Check local newspapers and see the number of properties available for rent in the area.
Do as much research as you can and keep researching. There is no such thing as too much research. You can get all of the answers you need a lot easier now than in the past. There are plenty of online resources that you can use.
There is no substitute for checking out a potential buy to let area yourself. Don’t trust everything that you read online or what agents tell you. Get out there and take a look around. Walk the neighbourhood and see what it is really like. Go in the late afternoon so you can experience day and night.
What type of buy to let property are you looking for? Do you want a house that you will rent out to a family? Or are you looking for a flat to rent out to a young professional couple? The amount of money that you have to invest will dictate this to a large extent. I do not want you to narrow your options here, but it always helps to have a firm plan.
Know the Landlord Law
It is no picnic being a landlord. You will have to comply with various laws to ensure that your property is fit for renting to people. There are gas and electrical tests you must comply with and there are a number of laws concerning tenants.
You need to know where you stand regarding tenant deposits, settling disputes with tenants, evicting tenants and so on. It is possible to use a letting agent to deal with all of these things but this will eat into your profits.
If you fall foul of the law then you could be facing a huge fine so make it your business to understand everything that you need to do to stay within the law.
You can create a Profitable Buy to Let Portfolio
By following my advice here you can certainly create a profitable buy to let portfolio. Remember to be patient when it comes to finding the right property at the right price. Keep researching and then research some more!
Smart property investors always know their numbers. Create a financial model where you can test different rent prices and property purchase prices. This will help you to place an upper limit on what you are willing to pay for a property and still be profitable.