I do a fair amount of advising people what would make a decent rental property, so thought it might be an idea to devote a few paragraphs to what doesn't!
There's good reason for this - with the buy2let market increasing at pace (investor confidence is back!) we get new landlords coming to us with properties they have bought and now need a tenant. Usually these landlords have done some research and bought something that will work. Not every time though - sometimes investors get it wrong - here's 5 examples that have already happened in 2012.
- A property that a landlord had bought and wanted to rent it without spending any money on it. He thought this would be OK as the previous owner had had it rented and the agent who sold it him said the rental market was great at the moment. It is, Mr Landlord, but you still have to make sure your property is legal, and also consider if your property will still rent when the market isn't as great! As such when you open the back door and it 'falls out' towards the patio, there's mould / damp all round the front bay, and two of the bedrooms don't have any sort of heating, you're going to have to put your hand in your pocket!
- A property that a landlady had bought and spent 6 months making feel like home. The highlight of this was an elegant 'roll top' bath which now had pride of place in the middle of the bathroom floor - the previous bath with shower over, having been ripped out to make way. To be fair, it looked lovely, but we were now being asked to rent out a 3 bed house without a shower. Sorry, Mrs Landlord, but that's not what good tenants want. More cash needs to be spent to make the property practical for a tenancy.
- A 4 bed property in one of the nicer areas of Rugby that the landlord had spent about £250k on and now wanted £1200PCM for. The agent who sold the property to the landlord had said this should be possible, but after 2 months of trying, wasn't really getting anywhere. Given the ready supply of large modern property in Rugby (as people can't sell them) anything over £1000PCM is ambitious at the moment, and the landlord in question ended up with £925PCM.The yield he subsequently got meant, in his own words that he "wasn't much better off than leaving the money in the bank".
- A landlord who had spent about £5000.00 furnishing a flat he had bought to rent because "all flats are furnished where I live (Wimbledon), and I want a corporate tenant". He ended up achieving about £30PCM more than if the property had been unfurnished - not a great return on a £5k investment. Getting a corporate tenant is of course dependent on there being a demand in the market for such properties, which there may be in South London, but perhaps isn't as common in East Northampton.
- A small, dated flat that the previous landlord had rented for £550PCM, and the new owner had done his figures based on achieving the same rent. "I don't understand it", he said himself, "I wouldn't pay a penny over £450PCM to live there". Exactly! So why do you expect someone else to? "But if we can't get £550PCM it wasn't worth me buying it". I think he had a point there.
My message to all investors would be to take some independent advice before purchasing, unless you're 100% sure of what you're doing. I say this because I know what happens when people don't. Even if it's not from ourselves, there are still a few regulated 'lettings only' agents in Northampton and Rugby who are well placed to advise on whether the thing you're buying will rent, and at what price. We're certainly more than happy for you ask, and I'm sure they are too.
