Ok, so you’re considering a buy to let property investment? After speaking with a mortgage broker to know your maximum budget – the next step is to decide what kind of property to invest in. Buying a new-build for your buy to let investment may be immediately tempting, but does it make a good investment? And what should you consider before making your decision?
#1. Freehold and Leasehold
#2. Importance of location in today’s world
#3. Tenant Considerations
#4. Investing In a New Build
Let’s explore some of considerations needed to make a sound investment decision starting with the most basic question, what is freehold and leasehold;
Freehold and Leasehold
The choice between freehold and leasehold has always been a hot topic and this is no different when considering a buy to let investment. Both have their pro’s and con’s, but the choice wholly depends on your strategy and investor and available options.
What is a Freehold property?
When purchasing a “freehold” property, the freeholder owns the property outright, including the land it’s built on.
What is a Leasehold property?
If you buy a leasehold, you own the property BUT NOT the land on which it is built. Ownership of your property is for a set amount of time, which can be a number of years depending on the length of your lease – the lease can be renewed after paying a fee.
Leasehold properties can be far less expensive than freeholds to purchase (remember to consider ground rent and service charges when calculating potential net yield) and generally come with additional costs and politics, so do the proper research into your costings before committing. Freehold properties won’t have any red tape around subletting restrictions or have potential sinking fund contributions to consider. If you are considering a flat – be sure to confirm that it does not have any cladding issues – which has been widely spoken about in recent press.
Carefully consider the location
This is even more important when looking at buy to let investments. Before doing anything, part of your considerations must include looking for the best areas to rent out properties, which might not be in the area where you currently live. Buy in an area which is attractive to tenants such as university towns (if student accommodation is your market) and where there are sufficient numbers of people who will want to rent. Buying near large business parks such as Green Park in Reading or close to large institutional employers such as the largest hospital in Reading which is the Royal Berks is a good starting strategy.
If you have opted not to use an estate agent to manage your property, you will have to be available to your tenants if something goes wrong, you will need to know how tenancy law works and keep abreast of the fast changing legislation.
Just as a business must know their target market (who they’ll sell to), you must identify your own ideal tenants so that you can ensure that your property is tailored to them, increasing the chances of appealing to a large number of your ideal tenants. For example, the needs of a small family will be different to those of university students in everything from how much rent they will pay to what fixtures they will expect you to provide.
For the majority of individuals, the vaccine rollout won’t mean a complete return to work. Working from home at least in some capacity is highly likely to carry on for most modern companies, so it’s a good idea to consider the additional need of office space, balconies and garden areas etc to cater for this particular need.
Investing In A New Build
New-build properties offer a range of attractive benefits for investors and tenants alike. From energy efficiency ratings to new appliances, the appeal of a brand new property is an attraction in itself and you’ll be hard pressed to find tenants who aren’t interested in ‘new. Likewise, lower levels of repairs, maintenance as well as long warranties (10 years in most cases) are a benefit to landlords.
You’ve probably seen on the news and various watchdog reports the problems that surround new builds, from built-in flaws like thermal issues to quality control oversights on the developer’s part. You are likely to have direct contact for any questions or problems within the development company though, so ensure you’ve got the correct point of contact for this. Also, ensure you’ve run a thorough check on the planning and the property itself, as it builds or until you get the keys.
If you’d like more advice on buy to let, feel free to contact us to get our expert advice on which properties are the best investment choices. We have many case studies highlighting how we can help in a range of situations.