1) Yield or Capital Appreciation, or both?
Why are you buying this property? Do you want
to make money on a monthly basis, or are you more interested in making money on
the value of the property over a period of time? Or do you want a little bit of
both? Your requirements here will shape where you look for property - some areas
offer a much better yield, others have better long term prospects. Rarely does
an area have everything (or we'd all be shopping for property
there!) but some offer a happy medium.
2) Research the market.
A lot of research you can do yourself. These
days information is very freely available on the internet, regarding what
properties are advertised at and what properties have sold at. If you're being
asked to pay £100k for a property when the identical one next door recently
sold for £80k, you need to ask yourself why. Equally you can see for yourself
what similar properties rent for nearby - a property nearly always achieves
within £50 of the asking price, unless the asking price is over £1000PCM in
which case the variance can be greater.
3) DON'T listen to an estate agent.
This is the classic mistake to make! An estate
agent is paid by a vendor to sell a property. If they don't sell it,
they don't get paid. As such an agent will say pretty much anything to get a
person to buy. Estate
agents get criticised for this, but commercially it's perfectly logical. As
such when an agent is telling you the price is a good one, or the property will
rent for far more than you thought it would, or that the internal condition
doesn't matter because it's only a rental property, don't believe them without
doing further research! In 5 years as a letting agent, I've lost count of the
number of landlords that have sworn blind their property is worth more than it
is, because the selling agent told them it was - people fall for this again and
again and again.
4) DO listen to a lettings agent.
I would say this, wouldn't I, but again it's
commercially logical. A lettings agent doesn't make a penny out of a landlord
if the property sits empty. As such it's in the lettings agents interests for
the landlord to get a property that rents easily, quickly, and consistently. If you buy something that's tricky to let, it
will cost me a fortune! As such we have some shared
interest!
5) Be sceptical about leasehold properties.
Landlords are often attracted to leasehold
properties as they often trade for less, there are often deals to be done, and
there's a perception that tenants like flats. Whilst, to an extent, the latter
point is true, tenants only like flats because they tend to be modern inside -
give tenants a modern house and they'll take that every time. Reasons to be
cautious about leasehold properties are:
a) you pay the service charge, which can kill
your rental yield. you also still pay for anything that goes wrong inside the
flat, so don't think you're saving too much on maintenance and upkeep.
b) if the lease runs down, so does the value
of your investment. Extending a lease costs £££.
c) you have little control over the communal
areas. if there are problems with maintenance and condition, it's really hard
for you to directly affect, and it will hit the rentability of your property.
d) modern flats have been savaged on price
more than any other type of property in the recent housing slump. I have
landlords who paid over £150k for something that is now worth less than £100k.
Equally when ever a plot of land becomes available, it's flats that go up these
days, whereas small houses never get built. As such, due to supply and demand,
it's hard to see flats appreciating in value at the same rate as houses.
So that's 1-5, next week it's 6-10.
Richard.
