The buy-to-let market is the star at the moment. As generation rent becomes more prominent and demand for rental properties soars, more investors are turning their backs on traditional asset classes like stocks and shares to buy rental properties thanks to the strong returns they offer.
For new investors, however, there are still pitfalls to overcome. We take a look at some of the top tips around to make sure your venture into the world of buy-to-let property is a successful one.
Know your consumer
Although the rental market is very strong at the moment, and demand is high nationwide, it’s not as easy as buying any property anywhere and hoping for the best. You need to know who you are going to let the home to and what they are looking for.
It all boils down to buying the right assets in the right areas. The first question you always need to ask is whether there is rental demand in a certain area. Cities and larger towns will always have a strong rental market, but more rural locations will not.
After this, you need to make sure you buy the right property for the audience you are pitching to. If you’re in the city, buy nice spacious apartments that would appeal to young professionals and couples, for suburban areas, two-bedroom homes are always the most popular rental properties, and if you’re in a student stronghold like Manchester or Liverpool, purpose built student blocks are one of the best ways to secure strong returns.
It’s all about knowing who wants to rent, what they’re looking for and where they want to live. A little research can go a long way.
Speaking of research, if you are a newcomer to the private rented sector, it can seem like there’s a lot to learn and more than you might have thought to take in. Spending some time researching the market and regulations is a great way to set you up.
If you are worried about your legal obligations, websites like the National Landlords Association and the Association of Residential Letting Agents can give comprehensive guides on what landlords are required to do, as well as giving hints and tips surrounding best practice.
For rental market research, savvy investors may also want to use online property portals to see how certain areas of the country are performing. It can show you where there’s a strong potential for investment, high rental prices in relation to property prices and even a lack of quality private rental stock.
There are two schools of thought on the best way to maximise your returns in the buy-to-let market. Some investors will tell you that the best tactic is to spread your investment a little, with a diverse portfolio that protects you against falls in certain areas of the property market.
However, for others it’s all about choosing to specialise in areas that they know well. A good example of this is in the student market. This niche branch of the property sector has become more and more popular in recent years, largely thanks to the returns of more than six per cent that can be regularly achieved.
By specialising in an area like this, where tenants have specific needs and wants, you can be better positioned for operating successfully than a landlord who is buying speculatively in different areas of the rental market.
Make rental income the star return
For some investors, capital returns are the be all and end all of the property market. However, with rentals having become more of a force since the fall of the market in 2008, rental returns can be far more lucrative, if less immediate. In the coming year, for example, rents are expected to increase by as much as ten per cent, compared to around two to four per cent in terms of house prices.
Getting your head around this will be the key to success. While buying a house and selling it for more will give an immediate windfall for buyers, by taking their time and looking more at the long game, rental income can be very lucrative. It’s the reason many older people are now looking at the rental market as a way to give themselves a supplementary income in retirement.
For new investors – as well as seasoned veterans – investing in managed properties is a fantastic way to make good returns without the stress that can be generated by a property portfolio. These properties generally are managed by a single company, which means property owners not having to deal with maintenance and repairs. It gives a hands-off approach to investment without the need to lose out massively on returns.
Often these investments will come in purpose built blocks, and they can often be bought for below market value, which is good for yields. In addition to this, landlords who invest early are also often guaranteed a set return for a number of years, which means they have peace of mind that their income is protected.