1. DO YOUR HOMEWORK
It’s a cliché but true: in life preparation is everything, and property is no exception. Use the internet and local newspapers to find out everything about property in your chosen area – where is hot [and where is not], how quickly property is rented out and how much; what type of property is needed and what type of tenants the area attracts [professional, students etc]. Speak to the professionals in both residential and commercial property management.
2. ITS NOT ALL ABOUT THE YIELD
Rental yield is a useful rule of thumb to work out the return on your investment, but it is not the only financial aspect to take into account. Others include
Cost of borrowing
Cost of ground rents, service charges etc
Also think about the longer term prospects for capital growth; you may be getting a slightly lower rental now but in an area which may be ‘on the up’ and may see a greater increase in property and rental values than other, more established areas.
3. LOOK AROUND
The easiest option is to buy on your door step, and there are many good, practical reasons for doing so, particularly if you know the area well and - if you are going to manage the property yourself - it’s no too far away to attend to any work required. However, other areas will offer better value investments or higher rents so take a good look around before you make your final decision.
4. UNDER THE HAMMER
Auctions offer a great place for the landlord to start. It’s here you that may still pick up a bargain, and lots of auction properties come with their own tenant already installed. You’ll need to move fast – most auctions give you no more than 3 weeks to view a property, check the legal docs and sort finance – but don’t be rushed and don’t cut corners. You’ll need a solicitor to check the documentation especially any existing Tenancy Agreements and a surveyor to check the property.
Avoid ‘auction fever’ by visiting some auctions before you plan on buying anything – watch how the professionals act and record actual sales prices against the guide prices. On the day you go to buy, try to have a couple of lots to bid on, set yourself a limit and stick to it!
5. BE REALSTIC
If you think your investment will be let every month, think again. If you think all the rent will go to your investment pot, you’re wrong. All tenants will love the property like it’s their own? ‘Fraid not.
These things shouldn’t put you off, but they should indicate that you need to put a bit of realism into your plans. Work your income on 10 months letting per year – any more and you’ve got a nice bonus. Don’t forget to put about 10% aside for wear and tear – no matter how good your tenant it will need freshening up from time to time. Again, professionals in commercial property management and residential lettings will help with advice.
6. BE IN IT FOR THE LONG HAUL
Make a clear distinction between property developer and landlord. The former will do a property up and sell on for a profit in the short run – ideally in a matter of weeks to maximise their investment - while landlords play the long game. They hope the capital value will increase over time, and they will use the rent to build an investment pot. However, if capital values fall for the first 12 months that’s not a problem as they won’t expect to sell for perhaps 5 or even 10 years.
Successful landlords also see the value of tenants. The landlord may be receiving slightly less than market value but the tenant is trouble free, looks after the property and is in likely to be around for a long time so they are worth holding on to.
Hopefully these tips will help you make a successful start to your residential or commercial property property empire – good luck.