The buy-to-let market has been one of the most successful investment models of recent times, and the London Stock Exchange as the best investment of the past ten years has in fact singled out property. Unlike many other kinds of investment, buy-to-let is seen as less daunting than the stock market or investment funds as almost everyone has some experience of purchasing a property. For this reason, buy-to-let is one of the most accessible types of investment, and most people feel that there is little specialized knowledge necessary in order to be successful.
As with any investment, there is always a risk of losing money as much as there is of making it, and unless you are careful, considered and well informed, buying a property to rent it out could become a huge black hole for your hard-earned money, as well as the equity you may have in other properties.
There is no magic formula for success in the buy-to-let market, but by taking certain steps you can minimize the risk exposure to which you subject yourself, and hopefully give yourself a good basis to start the process of putting together a property portfolio.
This is without doubt the biggest and most powerful weapon that you have in the fight to make your buy-to-let investments a success. It cannot be stressed how important it is not only to know as much as you can about property in general, but about all of the areas in which properties in your portfolio are located. In addition, the more knowledge you have of financing, legal issues, planning laws, marketing rentals, renovation, interior design and even DIY, the more you will be able to take control of projects with confidence. Also, the more knowledge you have, the less chance there is you will make expensive mistakes in the buying, renovating and renting of your properties.
The amount of resources that are available to buy-to-let investors is huge, and much of this information is free. Not only are there plenty of dedicated buy-to-let websites from which to glean a great deal of information, but there are exhibitions, seminars and other events to help you, not to mention the TV programs from which to borrow even more ideas.
2.Have a head for figures
As the owner of a number of different properties, you will need to be on top of the budgets, incomes, outgoings and running costs of each element of your portfolio. There will always be unseen costs to deal with, and you may have to cope with voids in the rental of your properties. Advance planning for as many of these eventualities as possible is essential, and having an idea of how to deal with moderately complex bookkeeping will help you to cope with the numbers.
In addition, you will need to have a good accountant on board from the early stages in order to help you deal with the tax on your rental income, as well as any elements of your outgoings on which you might be able to claim tax back.
3.Let your head rule your heart
The aim in getting the best deals at the front end of your investments is knowing the proper market value of the property, and trying to get as far below that as possible at the end of any improvements. The key to this shopping around for the best prices in your chosen area.
Much of this comes down to time, and the more properties you go to view, and the more negotiations you are involved in, the more accustomed you will be to identifying where you can save money. This should help you to reduce the asking price in the most legitimate manner, without just reverting to stubbornness as a negotiating tool.
Even more importantly, try to make sure you look at properties objectively. You are running a business with the aim of making money remember that you need to make business decisions.
4.Look for up-and-coming areas
Aside from your factual research on processes and laws, make the effort to follow the property press and the Internet to see where the whispers are pointing towards as the next areas for investment potential. Look for things like government investment in infrastructure, special events and the introduction of multinational companies. All of these things will help to push prices and desirability up and help rental rates.
No-one in the property industry claims to have a perfect crystal ball for predicting future trends, but experts and journalists have the benefit of seeing a huge amount of information and the ability to recognise the signs of growth at the early stages. With enough experience in the market and by reading all of the information available, you will be able to second-guess the habits of the market at large.
5.Put yourself in their shoes
With every property you add to your portfolio, it is important to make sure you know to whom you will be marketing it as a place to live, and then imagine you are the tenant. Ask the kind of questions that they will. For example, if you are renting out a small apartment, a professional couple will want to know how long the commute into the business district is, and if there are good restaurants in the vicinity. A property intended for a young family will probably want to have nurseries and good schools in the area.
You may well be completely surprised by who actually comes in to rent the property, but this is not so important. The main thing is to make sure you do not fall into the trap of buying in a particular area just because there are good deals to be had, or because it is the 'next big thing'.
6.Walk before you run
For some reason, many novice buy-to-let investors will see the 'perfect' property early on in their buying career, but which is far too much of a project either in terms of size, renovation, or financial commitment. Try to plan for a worst-case scenario at the beginning, so that you can make sure you will not be over-extended from the outset. If you are forced to try to catch up as soon as you start to establish your fledgling property portfolio, it will be stressful and will compromise your ability to make purchases in the future.
Additionally, at the beginning of your property portfolio, it is inevitable that you will make some mistakes. By simple mechanics, it is easier to recover from those mistakes on smaller projects than on large ones.
7.Off the chain gang
Buy-to-let investors are in a strong position in that they are free to negotiate in the same way as first-time buyers as they have no property to sell in order to facilitate their purchase. This allows you to wait out any haggling over price as the vendor is likely to be far more keen to release their equity than you are to sink yours into their property. Remember this fact in your discussions over price, but try to avoid overusing this tactic. People selling their family home have been known to take lower offers if the tactics of their buyer has antagonised them.
8.Recognise the downsides
In being a hardheaded businessperson in the buy-to-let industry, it pays to have your eyes open fully to the pitfalls and the problems that all of your properties have. Your position of strength comes from knowing exactly what you are dealing with and having the plans in place to remedy or improve the situation.
You are not forced to see things with rose-tinted spectacles in a business investment, or to be falsely cheerful in the face of problems in your properties.
9.Consider how hands-on you want to be
Finding and dealing with your tenants can be the most stressful part of owning a buy-to-let portfolio, and as the number of properties you own grows, can become a full time occupation. For most people, there will be a tipping point at which it makes perfect business and personal sense to employ the services of a property management company in order to manage the day-to-day running of the properties.
Buying a property is only the first step. Will you rent it out yourself or get an agent to do so. Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs and tax liabilities. If you choose an agent you do not have to go for a High Street presence, many independent agents offer an excellent and personal service also you can of set the agencies fee from your tax Liabilities.
who will allow you to spend your time on expanding and improving your properties.
10.Spread your wings
Most buy-to-let investors will buy the initial properties in areas they know well and have the ability to manage at short notice. As you develop your skill as an investor further, or should you wish to seek out returns, which are somewhat more exciting than much of what you find in the UK, you may wish to look at opportunities in markets overseas.
Property investment in foreign countries, often dubbed 'jet-to-let', is becoming increasingly popular, and there are finance products and schemes in place to allow you to do this without as much hassle as you would imagine. Countries in the Middle East, the new EU states, and even in the Far East can offer exciting projects and attractive returns. But be aware of other countries property laws, and rules, this could be a risk investing and not knowing the full ins and out of the county laws and property laws.
You should not expect to be able to build up a property empire without studying, working hard, and making some mistakes. The key thing is to make sure you learn from the mistakes that you make, and not to repeat them again in the future.