No matter why you are entering this world, you must look at it as a business and do your research. Many people have made a success in this sector but equally many have had their fingers badly burnt so please do not assume that it is an easy business.
Decide on the business model
One of the key issues is to decide on the nature of your business model. What do you therefore need to consider?
If you are entering the buy to let market are you going to be:
1. An investor;
2. A landlord;
3. A "reluctant landlord" and as such, are you looking to let to buy or let to let?
As a brief overview, the investor is someone who is looking for a new avenue in which to invest although does not want to be involved in the day to day management of the property. The landlord however is someone who may wish to invest for a variety of reasons but does want a degree of involvement and may in fact wish to manage the entire project. There are many who fit somewhere in the middle of these two categories.
Equally there are individuals who find themselves in a situation either due to negative equity or problems in finding a suitable purchaser for their current property but have a requirement to move. These are the reluctant landlords who find themselves in the position of having to lease their current home in order to allow them to move on and either buy or lease an alternative property.
Hands on or hands off?
In the buy to let market a decision has to be made as to whether you, as an individual will carry out the majority of the work including DIY, the preparation of the property and the day to day on-going management, or, whether you are going to employ a letting agent and appropriate tradesmen. If you are going to take on the majority of the work it is essential that you research all the statutory requirements and obtain relevant certification for the work and maintenance carried out to the property. You also need to take into account, and don't underestimate, the personal time costs involved with this approach.
When deciding on your business model, it is important to consider whether the objective is to benefit from yield or capital growth or a combination of both. It is important not to confuse gross and net yield. In addition, it is important to consider whether to take a short, medium or long term view on the investment. These decisions will have a significant impact on the nature, location, style and, the condition of the property..
When looking at the buy to let market, it is the same as any other business which requires a combination of capital and cash flow. If you are considering entering the buy to let market and require mortgage funding, bear in mind that this will be on a different set up to that normally anticipated in the owner/occupied sector of the market. Also when budgeting, remember the administration costs and that the terms of any loan will be restricted. The size of deposit will also have to be taken into account.
You should also consider any purchase repairs, maintenance and set up work and costs. It is also important to budget for stamp duty and the on-going tax liabilities.
It is important to remember as you enter this market, that as with any other business, there are specific regulations governing the buy to let market. Firstly, you must register as a landlord with the local authority, which brings with it, additional levels of responsibility. There are also deposit schemes to be adhered to and any tenant entering the property, is entitled to an information pack. We would also strongly advise that a formal tenancy agreement is put in place in any type of leasing arrangement. The same applies whether you are functioning on the open market, or dealing with family and friends.
Some of our readers may be considering an HMO property and again, there are regulations that require to be complied with and registration can take a period of time, delaying the ability to lease the property. Additional void periods at the start of any investment should therefore be kept in mind. In today's world, it should also be remembered that the landlord is in a position where they can be held responsible for the behaviour of their tenants so a "head in the sand" approach to the management of unruly tenants is not the best policy.
So what to buy?
You have decided on your business model and are looking at what to buy. There are various key factors to take into account and these include location, type of property, type of tenant, thinking about possible voids and considering whether you would prefer a property that is factored or non factored. The simplest advice to give at this point, is to remember that you are buying a property to lease and that this is a business. You should therefore be considering properties which maximise the lease potential and provide the return that you desire, rather than looking at a property that you yourself would like to live in.
This also applies to the location, style, finish and possibly condition of any property being considered.
Up and running
Once you have purchased the property, it is time to decide whether you going to engage a letting agent. - If you do decide on this route, do your research and read the small print carefully. It is also important to bear in mind that the cheapest option, may not always be the best. A good agent will also advise on the marketing of the property to achieve maximum return and this is similar to selling, where presenting the property in its best possible light is essential. In addition, a good agent will advise on how best and when to carry out inventories.
This is by no means a comprehensive list of items to consider but I trust this whirlwind introduction to the buy to let market has been of some assistance.