Some become landlords quite by accident. But for those who make the choice to invest in buy to let property, one of the first decisions they must make is where they will make their first purchase.
Sometimes, the decision is made for you
Of course, not everybody lives in an area that boasts the fundamentals of a good rental property purchase. Buyers should be on the lookout for affordability balanced with stable price growth, solid demand and good local amenities.
If their local area doesn’t fit the bill, aspiring landlords will likely have no choice but to invest further afield. But if there is a good potential purchase just down the road, should they automatically go for it?
The importance of balancing risk and reward
The basic precept that should govern every decision a landlord makes is finding the appropriate balance between risk and reward.
Buying three £75,000 properties might not just be more profitable than buying a single £250,000 property; it could be less risky. If one tenant were to leave or one property were to fall into disrepair, there would be two more that were still habitable and still generating income.
The same could be said of leveraging. Using three mortgages to leverage three properties could be less risky than leveraging a single property, because if the debt on one property needed to be reduced, the other two could potentially act as a source of ready capital.
Conversely, each additional property adds additional risk of defaults, repairs, voids or any of the other misfortunes that can befall a landlord – so it is important to consider all angles.
Hands-on or hands-off?
Some are content to invest from the comfort of their armchair, whilst others like to get more involved in the management of their property.
This could simply be because they would prefer to save money on management fees; but in other cases, they might want to renovate the property to add value (whether to sell for a profit, or release as a deposit for a second purchase).
Whilst not impossible, overseeing renovations and other projects from afar is certainly more difficult. It means using potentially unknown traders, and being unable to keep close tabs on the progress of the project.
So those who wish to invest in a property to add value have another reason to consider how far afield they are prepared to look for their first purchase.
It’s crucial to get good local intelligence
The value of specific local knowledge can’t be overestimated – the more specific the better. A landlord buying in his or her locale will probably know not only what areas are better to invest in than others, but what streets too.
When investing further afield, such exact knowledge is harder to obtain – but not impossible. Online resources that detail precise local metrics are plentiful, as are forums and other communities that allow like-minded individuals from opposite ends of the country to connect.
Employing an accredited local agent
If investing long-distance, instructing a management agency is practically mandatory. A full management service can typically cost between 10% and 15% of the monthly rent, as well as one-off fees for tenant finding, tenancy contract provision, deposit protection, inventory management and more, but a long-distance landlord will find managing all of this alone extremely difficult.
Established local agents, rather than chains, can have knowledge of the local market, and may even be able to assist in sourcing a suitable property if approached prior to the purchase.
Most importantly, however, landlords should only use agents who:
- Belong to a professional body such as ARLA, NAEA or RICS
- Are members of a redress scheme (Ombudsman Services, the Property Ombudsman or Property Redress Scheme)
- Have a professional indemnity insurance or professional liability insurance policy in place