Before commencing your search you need to consider what kind of tenant you are looking for… for example:
- If you are looking at students then it is likely they would want to live in an affordable property close to the university and nightlife
- If it were a family then they will be interested in living near to good schools, a garden and generally plenty of storage space within the house
If you get the location or type of property wrong, the rents may be lower than anticipated and the right tenants harder to find.
Always bear in mind that some properties are more difficult to get a mortgage on i.e. former council houses, non-standard constructions, flats above commercial premises such as shops/cafes etc.
Does the type of tenant matter?
The type of tenant renting your property can affect your plans, for example many lenders have restrictions on mortgages for students and DSS and Houses in Multiple Occupation (HMOs). An HMO building is defined by having three tenants or more, that form more than one household and who share a toilet, bathroom or kitchen facilities.
How do I choose where to buy?
If it is your first buy-to-let then it would be worth considering buying a property close to home. Not only will you be familiar with the area but you’ll be on near should anything go wrong i.e. repairs required.
Buying somewhere further afield can present a wider range of options, however you may need to consider using a letting agent to manage the property,
When you have decided on an area contact a local letting agents who can advise on what kind of properties are in demand and how much the rent would be.
Make sure you do your homework by checking the average property values for the area and take a look at how much properties are renting for in the area.
Do I want capital growth or good rental returns?
As a buy-to-let investor, you will be looking for either capital growth (increase in the value of the property over the medium to long term) or rental yield (income generated from the property expressed as a percentage of the property value). You’ll need to work out which of these has the greater advantage. For example, if your initial costs are so high you are unlikely to attain a good rental yield, you’ll be depending on property prices rising. If, on the other hand you are buying a cheaper property to rent out to several students, you will be relying more on the rental yield.
A good rental yield is generally around 5% a year, although some properties might reap yields as high as 7% plus. HMOs can achieve between 12% and 15%.