Tax changes introduced by Chancellor George Osborne have left many landlords struggling to make their buy-to-let investments profitable.
While the introduction of a 3% stamp duty premium on second properties – to come into force in April – has many potential landlords wary of entering the residential property market, there are still ways to make such investments pay.
Here, we explore five factors to consider when investing in property.
1 Choose a location
Choose a location that is forecast to perform well in coming years, and offers good opportunities for the type of property or type of tenant you are looking at. Most forecasters agree that regions outside south-east England offer the best potential for growth, and surveys suggest that one of the biggest draws a location can have is being close to employment centres.
2 Choose your ideal tenant in advance
Your choice of location should be based on its popularity with your ideal tenant. Whether you wish to target students, young professionals or young families, the property should be in an area where demand for rental properties among that demographic is strong. There are many types of tenants, but success will come more easily if you narrow it down to one market from an early stage.
3 Choose a property
Choose the type that your target tenant most commonly looks for. Young professionals, for example, typically prefer to live in modern apartment blocks with a choice of on-site amenities that is close to a town or city centre and has good transport links. As for choosing an individual buy to let property, look for one that offers good quality with no serious problems (though needing the proverbial lick of paint is not a huge problem).
4 Crunch the numbers
The financial calculations of property investment has always been an important step, but with many variables shaken up by government tax reforms it is more important than ever to make sure all the figures stack up. Work out the net rental income a property would get you after mortgage repayments and agency fees, and make sure this is generous enough to absorb void periods and ongoing maintenance costs. Most pertinently at the moment, make sure it will stand up to the roll-out of tax reforms over the next few years and still leave you with a worthwhile investment.
5 Use a letting agent or property manager
As tempting as it may be to manage your property yourself, having your property professionally managed is almost always worth the costs. Managing your property yourself is like taking on a second job, while a professional management service turns it into a very hands-off income generator. Furthermore, professional management services ensure that things like tenant vetting and legal formalities, which can be difficult for non-specialists, are always handled thoroughly and properly.