Since the credit crunch started to bite, there has been an increase in demand for rented property, especially in some areas. Unfortunately this has also led to an increase in would-be buy to let investors losing their money – often because they have received inadequate or, in some cases, actually false information on buy to let.
One thing is certain – it IS possible to make money with buy to let. But there are so many pitfalls that it is absolutely essential to do your research, to gather as much information on buy to let as possible, and to take all your transactions with a healthy dose of common sense.
First and foremost, identify the group to which you wish to target your buy to let property. Different sectors of the market need different types of property, so it’s no good buying your property first and then thinking who you might want to let it to.
The main groups include:
• Students, who are always going to need rental accommodation
• Graduates and young professional singles or couples, who can’t get on the property ladder
• Families, who either can’t get on the property ladder, or have been repossessed
Your choice of who you want to let to will dictate the area where you buy your property and the type of property you buy.
• Student accommodation needs to be near the educational institution where the students are studying. Students often like to rent property in groups so a substantial house with four or five bedrooms is ideal – and preferably no garden! Students also like to have plenty of pubs, bars and cheap restaurants (e.g. curry houses) nearby. Furniture needs to be strong and durable rather than “posh” or flimsy.
• Young professional singles or couples also like to be in an area close to shops, pubs and places of entertainment. Flats can be quite suitable for this group, but a big new-build block that is isolated from amenities might not appeal.
• For families the emphasis should be on closeness to shops, schools and transport. Houses are preferable to flats, with enough space but not too much, and a reasonable size low-maintenance garden.
However, although choosing your area with your target tenant in mind is essential, it is not the only consideration. Remember that some areas have seen a collapse in the buy to let market, with investors unable to command enough rent to cover the mortgage. This is due to over-supply of rental property – often because of property companies over-selling to first-time buy to let investors. This means that before buying you must check that demand still exceeds supply in the area.
For instance, if you want to let to students, it’s no good just buying a property in a university area and hoping for the best. If the market is already saturated it won’t be easy to find tenants, however suitable the property might be. Check with the university or college accommodation offices and with local estate agents, to find out whether students are having difficulty in finding suitable accommodation or whether they have plenty to choose from. And if you do buy in that area, make sure you register with the university accommodation office.
Remember that although the lender of your buy to let mortgage will assess the rental potential of your property, this will probably be on the basis of similar properties that are already let – they won’t look at supply and demand. By the time you get your mortgage and then find you can’t let the property, it will be too late. To avoid getting your fingers burnt, find out as much information on buy to let as possible and above all, research your area.