With property gloom consistently hitting the headlines on a continuous basis, it can be difficult to distinguish the true benefits of buy to let investing – especially the many longer term rewards. Property investors who are able to properly analyse the situation, all know that the current climate is a great time to buy income producing investment properties at distressed prices – possibly the best chance you‘ll get for another 15 years! Despite reports of plunging prices and markets in chaos, experts say it is an excellent time to invest in bricks and mortar.
Buy to let investors are categorized into two types. First are those whose main concerns are income and cash flow. This group typically looks for property where the rental profits can cover the mortgage expenses and provide a small profit on top. The investors belonging to this category use the profits they gain to save up for future rate increases, to cover unexpected expenses and to finance future investments.
The second type is the speculative or short-term investors. Generally less experienced, they have purchased properties with the hopes of reaping profits from price increases. These speculators are usually lured by the ‘easy money‘ claims made by property clubs. A lot of these investors want to earn profits from owning properties even before they are constructed. The strategy worked for some but it was disastrous for others. At present – with the market experiencing stabilisation of property prices – the prospects look brighter for long-term investors.
In times when prices were increasing sharply, yields (or the rental income against the value of the property) were going downhill. But now that property values are evening out there has been a growth in yields. With the tenant demand seeing a significant jump, landlords can now push their rents up. This increase in demand comes from people who don’t have the means to purchase a property, or those who are waiting for price declines before they make the decision to buy.
Experts have the following buy to let advice for investors looking to invest in bricks and mortar in a harsh market.
- Make sure that the rental yields exceed expenses and bills, can cover vacant periods between tenancies, and provide room for rate increases.
- If you get a bargain property that needs some tidying up, bear in mind that if it needs a major overhaul you will be compelled to pay the mortgage while you have the repairs done before you can let the property.
- Check the area for rental property demand and determine your potential tenants. Research the place, its rental values, growth in property prices and the type of people that flock to the place.
Evaluate additional expenses. Take into consideration factors like maintenance costs and purchase of equipments for the property. Make sure your budget has room for such expenses. Determine if there‘s a need for you to employ a letting agent. An agent may cost you 10% of the rental fee but it‘s often useful having them around especially if you are not located nearby.