Rented property focus - September 2011

Sheffield’s recent surge in demand for rental property could make this the perfect time for new landlords to enter the buy-to-let market – but only with careful consideration. In this month’s column, Rob Cooke outlines the basics for beginners...

I am thinking of purchasing my first property to let. Do you have any useful advice for novice landlords?

Making a wrong move when letting out a property could leave you with mortgage payments to meet and no rental income, but the right choices can be the key to extra cash and a stable asset.
  
Firstly, do your homework. Investing in rental property is not a ‘get rich quick’ scheme. Before you dive in, be prepared to:

Have a deposit tied up for an indefinite period – this is usually 15-20% of the property’s total value
Renovate and refurbish the place to a standard that will attract tenants
Pay for maintenance
Cope with fluctuations in the market

Tips for success

Location, location, location! This is one of the most important factors influencing a tenant’s decision. Desirable properties are situated conveniently for public transport, local amenities, restaurants and bars. They may also have facilities for parking nearby. If you are intending to let to the student market, proximity to the university will also be a major selling point.
  
Consult local letting agents and try to establish which areas and what types of property are in demand. They should also be able to tell you about levels of rent – charging too much will put off prospective tenants. Research the market thoroughly and remember that rent does not necessarily equal the mortgage. If the lettings market is sluggish, you may not succeed in covering your entire repayment.
  
A well maintained, attractive property will be much more popular than one that is run down and if you decide to let your property furnished, it is worth taking some time to discover what features appeal to tenants. Again, your letting agent should be able to provide advice.
  
If you have the money, time and inclination, you may consider investing in a property that requires some work. You will then be able to customise it to the needs of tenants. If, however, renovating a property is not your bag, buy something newer. Remember though, new properties still need maintenance and this only increases with age.
  
When you are buying a property, bear in mind that it is not you who will be living there. Look at it with an objective eye and try to see things from a tenant’s point of view.

Letting agencies

Using a professional letting agent is a great way of entering the market and brings a number of benefits:

Proven experience in the field
Reduced administrative burden – agents will usually handle references, inventory, tenancy agreements and financial transactions, such as deposit/bond money and rent
  
Agents normally charge 10-20% of the rental income. Before signing up, check with the Association of Letting Agents that the firm is reputable and do as much research as possible. The Royal Institute of Chartered Surveyors (RICS) has a free guide called ‘Letting Your Property’ that provides helpful advice to prospective landlords.

Buy-to-let mortgages

There are increasing numbers of lenders taking mortgages tailored specifically to the buy-to-let market.
 
You can borrow 15-80% of the property’s purchase price and loans are available in long, short, fixed or capped options, at about 0.5% more than a normal, standard variable rate mortgage.
  
Before committing to an investment loan, review your current and long-term situation to make sure you know what you are taking on. Ask yourself:

Will I be able to cover my mortgage repayments and insure the property if I have no rental income?

Can I afford to lose money/take a loss if the housing market slumps?

Will taking out a loan against the property affect my chances of securing a mortgage if I decide to move house?

As you can see, there are many important points to consider before buying a property to rent. If you would like more information about any of the issues raised here, consult your solicitor.