Do you have a property investment checklist?
Do you have a process that you go through when you are looking to make an investment in a property?
I get asked a lot about the right process for making a property investment. People ask me if I have a system that I follow to give me the maximum chance of success. The answer to this is “Yes I do” and in this post I will share my property investment checklist with you.
One of the things that I learned very early on in my property investment business was the need to remove any emotion from investing. Some new investors (and even experienced ones) will view a property and fall in love with it.
Their heart is set on purchasing this property and unless it has a severe defect then they are very likely to go ahead. When your heart rules your head you are not in the best place to make the right decisions. Having a process to follow makes this a whole lot easier.
Years ago I created my property investment checklist that I have refined over the years. This list works very well for me and it should for you too. Feel free to tweak the list a bit to suit your personal way of doing things if you want.
What I am going to share with you is my personal property investment checklist for buy to let properties as that is the main strategy that I use. If you use another strategy then most of the information here is still very relevant.
I am assuming that you have a process set up to evaluate each opportunity for investment in terms of the numbers. You can do this using a spreadsheet. It is important that you have a way of plugging in the numbers for each potential project to see if it is a good fit for you and aligns with your property investment goals.
1. Property Investment Checklist – What Area?
This is more important than it has ever been. There has been a shift in profitable rental yields from the South East of England further North and in Wales and Scotland too. When you are looking at investment opportunities in an area that you are not familiar with then you will have to work harder to find out all that you can about it.
There are some areas of the UK right now that offer higher rental yields than London and the South East and also house prices are usually a lot cheaper. But that doesn’t mean that you should buy anything. It is essential that you research any new areas thoroughly and ask the right questions. Here are some of the questions that I would ask:
- What are the employment levels in the area and are they improving or getting worse?
- Are businesses moving in raising the possibility of more jobs?
- Are there any planned initiatives to improve the area (new road and rail networks etc)?
- What are the demographics of the area?
- What percentage of the housing market is occupied by homeowners?
- What percentage of the housing market is rented by private tenants?
- What type of properties are available?
You can do a lot of this research without having to visit the area. However, when you are satisfied that it is the right area for you then I would strongly recommend that you go there. You need to establish a good relationship with local estate agents and letting agents who will have information that you will never uncover using the Internet.
One of the things that would sway me to look for investment opportunities in a particular area is a good balance of those that own their own home and tenants in the private rental sector. Good demand in both of these areas will keep house prices and rental prices rising.
2. What kind of Tenants?
When you are investing in buy to let properties you must have a good idea of the tenant profile in your chosen area. Some areas are dominated by student rentals as they have large universities and colleges. Others will have working professionals that are looking for a good place to live.
You need to decide what kind of tenants that you want. The student market is good but the rent prices will usually be a bit lower and there will be vacancies during the summer. Renting to working professionals means that your property means to be very appealing to them and close to transport networks etc.
Do you want a single let or multi let situation? This will affect the type of property that you need to invest in. Getting to know letting agents in your chosen area is a must. When you meet with them you need to ask these questions as a minimum:
- What are the average rent prices by property type?
- How quickly are properties let in the area?
- What type of tenant will the property you are thinking about investing in attract?
- Do tenants prefer a furnished or an unfurnished property?
- Are there any typical problems with tenants?
You can make your initial enquiries over the phone with letting agents. But there is no substitute for meeting with them – especially if you want to create a portfolio of buy to let properties in the area. I recommend that you also approach different letting agents so that you get the full story.
3. What are the Rental Yields?
There is plenty of data around to show you the rental yields for cities and major towns in the UK. You will find that average rental yields vary from 4.5% at the low end and 8% at the high end for single rental properties. So you must do your homework here.
There are always surveys conducted on rental yields so it should be easy to find the information that you are looking for. Rental yields need to be a focal point of your “numbers system”. You need to find out what the best case and worst case gross rental yields are and then plug these into your spreadsheet to see if it all makes sense.
You need to know what your estimated return on investment on a buy to let property will be. Rental yields play a significant role here as do other costs associated with the purchase of a property. At the end of the day only you can decide if the numbers appeal to you or not.
At the time of writing this post, rental yields were higher in the North West of England, Scotland the Midlands and Wales. So you need to be prepared to look further afield for the best returns on your investment.
4. How about Capital Growth?
Capital growth is not the most important consideration with buy to let properties but it is still a significant factor. You need to look at the current house price increases for the area that you are interested in investing in.
Knowing the demand and supply for properties in the area is essential. If the demand is strong and doesn’t show any signs of slowing down then this is good. Is the population of the area increasing? Are there local government initiatives to improve the area? These are all good signs that capital growth will continue.
5. What Type of Property and the History of the Market?
It is always a good idea to have a type of property in mind before you start looking for opportunities which is why I include this on my property investment checklist. What kind of property are you looking for?
- A terraced house
- A semi detached house
- A flat
- A bungalow
- A large property that you can convert into an HMO
What about the number of bedrooms that the property has? Do you want more than one bathroom? What floor area are you looking for? How about the space outside of the property? What kind of condition does the property need to be in?
You should always take a close look at the recent history of the housing market in your chosen area. It is also important to know what kind of properties are on the market right now within a specific radius of the area you are interested in. You can go online to find out some of this information but I would strongly recommend contacting local estate agents.
Find out what the typical prices are for the property types that you are interested in. Have there been any price drops for listings? Ask the agents what factors affect the value of a property in the area such as the number of bedrooms, property conditions and the amount of outdoor space available.
Local estate agents can provide you with a wealth of information about the recent history of the housing market such as how long it takes to sell a property and what prices they went for. You can also use websites like Right Move.
Also find out what properties are available to rent right now and also look at the history here. How long does it take to rent a property? What are the average rental prices by property type for the area?
6. Renovation Potential for Increased ROI
If you are happy to make a renovation investment in a property that will be available for a lower price due to its condition then you can look for properties in the area that have this potential. Having a property available for rent that is in tip top condition with features that appeal to the market will command higher rental prices.
The amount of refurbishment required is something that you seriously need to consider. What kind of budget do you have for renovation? Sometimes you can find properties that only require a small renovation budget (less than £10,000) to bring them up to the standard that you are looking for.
Talk to local estate agents and letting agents about this. You do not want to invest a ton of money on renovation if you are not confident that you can obtain the rent prices you are looking for. Not only could a good renovation project lead to higher monthly rents, but it will increase the value of the property as well.
7. What is your Exit Strategy?
You could argue that this should be the first thing on the property investment checklist. At the end of the day, all of the items on the list are important and it doesn’t matter that much what order you follow them in.
I recommend that you have an exit strategy for all of your investment properties. The housing market is always changing and you do not want to end up in a difficult situation so have a plan A and a plan B for an exit.
Here is a summary of my property investment checklist:
- Decide what area to invest in
- What kind of tenants do you want?
- What are the rental yields that work best for you?
- What capital growth are you looking for?
- What type of property do you want?
- What renovation budget do you have?
- What is your exit strategy?
Use this property investment checklist to ensure that you do all of the necessary research before making your investments. I have said this time and time again – you can never do too much research.