Making money from buy to lets is becoming harder – but not impossible. If you are thinking about embarking on the property let road, it is important to start off correctly. This means finding the right property.
Central business Service are based in Sileby near loughborough and we have seen a lot of potential landlords make a mess of this first, basic, step. Bear in mind that you are not buying for yourself. This is not a property you are going to live in. You are buying so that the property can produce a profit.
This is important. There is no point in buying a property which isn’t able to command a reasonable rent. The rental yield will help determine whether the asking price is right.
It is easy to calculate the rental yield. It is simply the expected annual rent divided by the property price, expressed as a percentage.
As an example, consider a house with an asking price of £100,000 and expected rent of £500 per month (£6,000 per year). The rental yield is £6,000 divided by the asking price (£100,000) as a percentage. In this case it is 6%.
If the asking price was £120,000, the rental yield would drop to 5%. Of course, an asking price of £80,000 would give a rental yield of 7.5%.
The better the rental yield, the more likely you are to make a decent profit. Don’t be afraid to negotiate if you don’t think the rental yield is high enough. Be prepared to walk away if you can’t get the deal you want.
Maintenance and Repair Costs
The cost of maintaining a property can have a significant effect on the profit you make. In general terms, older properties cost more to maintain than modern ones. You must take this into account. One consequence of this is that you should probably be looking for a higher rental yield from older properties than more modern ones.
This isn’t a hard and fast rule but is a good guide. An old property, immaculately maintained and modernised, might be a better option than a relatively new, “tired” property.
One thing you must definitely factor in is the cost of getting the property ready for occupation. If a lot of work is going to be required, particularly if you will be paying someone to do it, this should be considered when calculating the initial rental yield.
Type and size of property
Buying a five-bed detached house in an area where other properties are predominantly two bed terraced houses is likely to make the property more difficult to rent out (unless you intend to convert it).
Consider the type of property, the neighbourhood and the likelihood of tenants staying a long time. It is no good buying a property if it is going to be difficult to find good tenants or where there is a high turnaround of people.
If you have any questions regarding this article please do not hesitate to contact us (01509) 816150 one of our team will be happy to help. Alternatively you can contact us on the form below.
Another blog you may find of interest…. Do you own a rental property? Have you missed out on Tax Reliefs?