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What To Look For In A Buy To Let

I thought it was worth reminding us of what qualities to look for when choosing a buy to let investment, and also look below for our best deal of the year so far!

What are the key qualities you should look for when buying a buy to let?

This may seem an obvious question with obvious answers, but it is well worth reminding ourselves of the key things to be looking for when choosing a buy to let property.

What would you put at the top of the list?

High rental yield?

Or price secured below surveyed value?

Or low ratio between house prices and income?

Low Supply of similar properties?

Or clear exit strategy?

Or within 5 minutes of your home?

Finance available, and borrowing rates?

Everyone has their own ideas of what is best, and some people will prioritise each of these.

Our focus has always since we started sourcing 6 years ago, and investing 10 years ago, been concentrating on good rental yields and the most affordable areas of the UK.

Let’s look at each of these factors individually:

High Rental Yield

If you are looking to buy a property to rent out then clearly a high rental yield is attractive.

A quick reminder on how we work out yield – take the annual rent and divide by the value/buying price. So if you can rent the property out for 500 a month that would be gross rent of 6000 a month.

And if the property is worth 100,000 then the rental yield is 6%.

I would be aiming for a minimum of 7% yield – although as will mention below this can vary depending on borrowing rates.

Price Secured below Surveyed Value

Price secured is important – and many would say the discount to value is the most important part of buying. I would agree this is very important, although the yield is still more important if looking to buy to let.

Is there a minimum level of discount to aim for? Not as far as I am concerned – there have been plenty of times I have paid full market value for property, due to the yield and local affordability being attractive. However if you can get the yield you are looking for, the local affordability, plus a strong discount then even better!

Low Ratio between Income and House Prices

This is very important as this gives you an idea of how likely prices are going to go, going forward over the next 5 years – plus gives you confidence of there being local buyers to buy from you in the future.

I would aim in the UK at areas that have houses at around 3-5 times the local salaries.

Again as you build up your portfolio you may find some properties that fall outside this that are still worth going for, and this is fine – but as a general rule of thumb aim for this ratio.

Low Supply of Similar properties

Again a very attractive thing is to aim for areas where there are very few other rental properties – as clearly this means you have less competition!

So ideally aim for streets where there are 70% owner occupiers. Again this also is good for when come to resell, as shows locals want to live here!

Or within 5 minutes of your home?

For some who want to be hands on, this is very important. They want to be able to drive past their property, or be on hand if there are any issues, and self manage.

For many others this is not as important, and many do not want direct contact with their tenants!

It is certainly easier to manage your properties if they are in the same country as you, as there are no time differences, and no language issues.

I personally go for areas where the numbers work, and own properties in the UK and Overseas managed by around 15 different management areas. In fact I own some properties close to my home and yet have not seen them, as this is not my priority.

Finance available, and borrowing rates?

This makes a difference clearly, as with finance available, prices are likely to rise. If lenders are willing to lend a high loan to value on the properties this gives a good idea that they are pleased with the area and the security they give.

Borrowing rates are clearly very important – if you can get borrowing rates of 2% below the rental yields then this is clearly more attractive than if the borrowing rates are the same as the rental yields.

So these key areas are all very important when analysing a new property deal.

Hopefully by analysing these, you can see why an apartment on a Bulgarian golf course or beach is not as attractive an investment as say a 3 bed terraced property in Liverpool at 90,000 renting for 550 a month...!

So in summary, I would aim for properties whether in the UK or Overseas, offering a rental yield of around 7%, or 2% above borrowing rates, in areas where prices are between 3-5 times the local salaries, and then aim to get as good a discount as possible!

As mentioned above this is only a general rule – and you may well get excellent investments outside these figures – but you will not go far wrong if you aim for this when investing in buy to let.

Article Courtesy of Alan Forsyth @ Property Investment Deals

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