Why choosing a buy-to-let property requires an entirely different head over heart approach.

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  • Whether you’re an experienced or wannabe property investor, you’ve probably already bought a home for yourself. But choosing a buy-to-let property requires an entirely different head over heart approach.

    From calculating rental yields to targeting the right tenants, there are important steps to take when finding a successful property investment. 

    Here, we consider what you need to know.

    First things first, what’s my budget?

    Investing in a buy-to-let property typically involves putting down a substantial deposit, and unless you can buy outright, it also means taking out a mortgage. So do your sums to work out how much you can truly afford to spend. 

    Bear in mind that buy-to-let mortgages are more expensive than standard mortgages. They require minimum deposits of at least 25% of the property’s value, and interest rates are typically higher. Plus, the cheapest rates often come with high arrangement fees. 

    You’ll also need to factor in the rent you are likely to get. Lenders typically want this to cover between 125% and 145% of your mortgage payments. So if your monthly mortgage payment is £500, the rent you receive should ideally be between £625 and £725.

    Finally, remember to set aside some money for maintenance and for periods when the property might be standing empty between tenants, since you won't be receiving any rent at these times. 

    What makes a sound investment?

    This depends on why you’re investing in property. You may be focused on long-term capital growth, or doing a property up to sell on in the future. In this case, you want to look for a property in an area with strong growth potential. 

    But chances are, you want to receive an income while you own the property. So this means choosing a property with the potential for a healthy rental yield.

    What’s a rental yield and how is it calculated?

    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, yields of 5% or more are attractive to landlords. But whether this is achievable depends on where you buy and the rental costs in that area. 

    A rental income of £10,000 per year on a property costing £200,000 gives you a 5% yield. A rental income of £20,000 a year on the same property gives you a 10% yield, and so on.

    The average UK yield is 5.2%, but London yields may be lower because of the comparatively high property prices. Zoopla recently found that the top UK property investor hotspots offer yields of more than 7%. 

    What sort of tenants should I appeal to?

    The answer to this question is key to finding the right property. So consider whether you want to rent to families, students or young professionals. 

    Put yourself in their shoes, and think about what’s important. For example, a modern, well-maintained property close to public transport might appeal to young professionals. However, a family may seek open-plan living areas, proximity to green spaces and parking. 

    If you want to attract students, a property with a good communal living area, near to the university, libraries and local bars is sure to tick the right boxes. 

    Remember that whoever you rent to, there are documents you must provide, including a tenancy contract. The most common type is an assured shorthold tenancy (AST), lasting for a period of between six to 12 months. You also need to place the tenants’ deposit in a deposit protection scheme, or you risk being fined. 

    Where do I start my search?

    Draw up a list of areas where you might be interested in buying. You may want to start close to home, since you’ll know the area and can check on the property. But if you’re going to pay a lettings agent to manage the property, you may also want to look further afield. 

    A good place to start is to look at key stats for the areas that are of interest in your search. We have plenty of useful online tools to help you save time and money when looking for a buy-to-let. For example, our SmartMaps tool enables you to search for properties to buy within a single street or a particular area. 

    Our Area Guide allows you to search for local area trends and average values for different types of properties within a particular postcode. It also includes current rents, so you can see if the area has investment potential. 

    Our Advanced Search tool allows you to search for homes with specific features, such as 'thatched roof' or 'bifold doors'. 

    Don't forget to register with Zoopla for instant email alerts for your preferred types of property - you can save as many searches as you want. 

    You can also get an overview of the housing and rental market using the House Price Index and Rental Market Report

    Research the local housing market, trends, and demographics by speaking to estate agents. Ask what prospective tenants are looking for and how popular the area is with the type of people you want to let to. 

    What sort of property should I buy?

    The right investment property may be entirely different to a home you would buy for yourself. You may love older properties, for example, but these can come with hefty maintenance bills. 

    Ultimately, if you’re seeking to let as quickly as possible, you want a property with broad appeal. So think about the following: 

    • House or flat? This will affect the type of tenant you’ll get. Young professionals may want an easily maintained flat, for example, but a growing family may need a house. 

    • New or old build? You may find there are fewer issues with a new build and that they are less costly to maintain. However, older buildings often have more character, and may be cheaper to buy, particularly if they need some work. 

    • Layout? The kind of layout you choose will depend on the type of tenants you want to attract. A large communal space may suit students, but families may want open-plan areas for children. 

    • A garden? Gardens, in general, have broad appeal – provided tenants want to maintain them. For some, it could be an unnecessary hassle. 

    And how do I buy?

    You can, of course, go down the traditional route and buy through a local estate agent, or find a private seller.

    The major difference will be securing a mortgage. Lenders have different criteria and processes for arranging buy-to-let mortgages compared with standard mortgages. Some landlords choose to use a mortgage broker to help them secure the best deals.

    Alternatively, you may be able to bag a bargain at an auction. This is a popular option among experienced investors in particular. Our partners at iamsold offer a wide range of properties and further details on how to buy at auctions can be found in our guide.

    Buying at auction may also avoid the lengthy process of purchasing a property through the conventional process, when you may be stuck in a chain. But make sure you do your research and understand the pros and cons before going down the auction route, as major repairs can be costly. 

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