4 Key Considerations Before Purchasing Your First Buy To Let
Estimated Read Time: 7 minutes
Editor: Shaun Callacher
4 Key Considerations Before You Purchase Your First Buy To Let
In this post I thought I would share 4 points you should consider before you purchase your first buy to let property. I feel the below 4 points are often over looked by newbies & should be a major consideration before you purchase any buy to let investment.
So let’s begin…
1/ What is your Return On Investment (ROI)?
Working out your Return On Investment (ROI) is measuring your predicted profit. The higher the ROI the better! When working out your predicted ROI, realism & experience will help you get closer to a more accurate number. The important factors which I often see investors forgot to include when working out their predicted ROI is ALL overheads, this includes: bills, maintenance, management, insurance & of course mortgage cost. To help you understand how to work out the predicted Return On Investment (ROI) on your next opportunity check out my previous post here: https://www.prosperbyproperty.com/single-post/2016/09/04/How-To-Work-Out-Return-On-Investment
Remember, over egging your Return On Investment in your research & appraisal stage is not going to help you in the long run.
2/ Who's managing your buy to let?
The quality of the management of your buy to let property is the oil which keeps the machine running. If you are thinking of managing your first property yourself, make sure it is practical for you to do so in the first place. I see time and time again investors purchase buy to let properties miles away from their own home & believe they can manage it themselves to save on cost. All though this isn't impossible, it is a very difficult system to set up if you don’t intend to travel there yourself, as you are heavily dependent on trusting your appointed maintenance men/women to do a large amount of work for you. If you do intend to travel to the property from a long distance, don’t forget to add petrol (& the cost of your time traveling!) to your outgoing cost and therefore your ROI (see above).
Property management companies can offer experience and deal with tenants, and maintenance contractors, reducing the burden for you. It is the norm for them to charge anywhere between 10-15%+ of the net rent. This is a large cost, but perhaps it is worth considering?
Do not purchase property in a low tenant demand area! Purchase property in high tenant demand areas! Successful investors purchase property cheap in high demand areas.
I often see new investors sacrifice the quality of their property location to save £s, in the hope lower property values automatically offer higher returns. Although purchasing lower is a major factor in increasing your ROI, It is only a Return On Investment if you can find tenants to live in your property in the first place! Having the correct tenants to cover your overheads is what makes buy to let investing work. Purchasing in cheaper areas can often (but not always) mean lower tenant demand or worse - bad tenants.
I personally like to test an areas demand by doing dummy adverts. This is a test advert to see how much of a response you get from potential tenants. By doing this you can weigh up the demand & the likelihood of you finding the right tenant for your buy to let property.
4/ Correct Legal documents
Having the correct tenancy agreement & protecting yourself legally with your tenants is key to your success. Please do not print and use a tenancy agreement you have just found on google without fully understanding it. I highly recommend you use a solicitor & mentor or a letting agent who can guide you through the landlord process.
Buying your first buy to let can be a very exciting time. Please do not overlook the 4 above points because you let your emotions get in the way.
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