- Location Choose an area that people want to live in! This could be because of a university, city, transport links, good schools or a number of factors but make sure you do your research and buy in a desirable area. This might not be the cheapest area or the most expensive but a location that attracts people. Areas where rent is higher than average indicate a higher demand for rentals and usually you are looking for areas with a large working or student population. Make sure you match the type of property you can afford and want to buy within an area that people who would want to live in those homes would choose.
- Research Not only do you need to research the location and the rental market you need to make sure you have thoroughly investigated what you are letting yourself in for. Work out how long your money will be tied up for, research mortgages, speak to other investors and also think about how much you are going to be dependent on increasing property prices as this is never a given. At one time a high interest account would have given you an easier return but at the moment with interest rates so low you need to weigh up your options and think about how long you can afford to wait before you get a return on your investment. Ultimately the more you know before you buy in, the better your chances of a good return.
- Money Get the figures clear in your head before you commit, work out what you can afford to have tied up and also how much you need to get back on your rent each month. A good guide is to be charging a rental that covers 125% of the mortgage, the extra finance pays for repairs and maintenance and acts as a buffer for any times the property stands empty.
- Mortgage Mortgage deals vary so shop around, essentially the bigger your deposit the better the deal so ideally you are looking at having around 25% of the value to put down. You might find the best deals through a broker so this is an option worth considering. You can also find comparative searches online that will enable you to pick the best deal for the deposit you have and the time you want to borrow for.
- Tenants Think about the type of tenant you want to get or that would be interested in the property and put yourself in their shoes as you think about the property and what it needs. Is it for students? Working singles? Families? Think of your target audience and make sure the property meets their needs inside and outside. Ideally you want to attract tenants that stay as long as possible as this saves money, time and hassle.
- Problems It is always best to think through the negatives sooner rather than later, preparing for what could go wrong gives you a better chance of avoiding such pitfalls and means that you are primed for what lies ahead. Think about whether you can afford for property prices to drop again or whether you can come if recession hits. With any property there is always the chance that something major can need repairing, think about what you have saved to cover such costs and how replacing a boiler for example would affect you. Think through the eviction process and what methods of deposit security you will use to safeguard yourself against damages etc.
- Involvement Consider how much time you have to give to your investment and what you will want your role to be. You will make more money if you manage your own properties rather than using a rental agent but you will find that it takes more time than perhaps you may first think on viewings, advertising, repairs etc. If you choose to use an agent, make sure you look around and do your research before committing Ultimately you want your tenants to feel looked after and your properties to be well maintained and constantly occupied.
- Development Whilst the easiest option is to buy a new build or ready to let home there is money to make in property development. Think about whether you have the time and ability to buy something that needs work and renovate it to increase the value both for sale and rental. The advantage to doing this is that you add to your investment straight away giving you a greater margin of safety in your investment. A good rule is find a property where the end sale value is the purchase price, plus the refurb price plus 20%.
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