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Property Investment - Invest Successfully in Buy To Let
By Lea Beven
Aug 26, 2005, 17:15
Buy to let is increasingly attracting new
investors as lenders are loosening their lending
criteria. At the same time, many companies
are offering 'readymade' rental portfolios
which appeal to many first-timers. Here's
what you should be doing...
1. Focus first on rental demand.
This is the key. If there are few or even
no tenants for a particular type of property,
then there is no market for it. As such, it
is a waste of your time and money to buy into
that type of property in that area. You need
to talk to letting agents to establish who
is renting, how many are renting, what they
are renting and where they are renting. Many
newcomers automatically buy locally. It is
all well and good thinking about buying locally
as you know the area well, and don't want
to travel too far. But the rental demand in
your local area may not be sufficient. Buying
your property is going to impact on other
property rentals in the area as more become
available. The few tenants who are there will
become choosier, and either rents will drop
and/or tenants will demand higher standards
for their money. Don't just buy in when you
perceive an opportunity. Do your research.
2. Next, check and compare property
supply to rental demand.
Most investors start by deciding what they
are going to invest in, whether that's student
property or housing for executives in the
city. They then look at supply. This approach
is totally back to front. Lots of people do
it and some are lucky enough to do well. But
in this day and age, and with increasing competition
in property investment, you cannot really
afford to pick what you want without taking
into consideration the current market for
that particular type of property. You should
start with demand and then look at supply.
Most investors looking for rental property
go to estate agents to see what is up for
sale. They may also contact companies who
supply property and instant portfolios. It
is better to talk to letting agents. Estate
agents sell property. They will often tell
you what you want to hear to sell the property.
Similarly, portfolio companies make money
by supplying property to you. Once the property
is sold, they have little interest in how
it performs.
3. Recognise the myths.
"My property has car parking". So
what? It does not automatically mean you'll
rent your property. Parking will not make
a difference if would-be tenants can rent
a three-bed detached house (due to over-supply)
for the same price as your two-bed bed end-of-terrace.
Extras only give you an edge over a rival
investor with a similar property in an area
that has demand. No amount of luxuries or
extras will tempt tenants to go where they
don't want to live. Similarly, your property
may overlook a park. Again, this will not
necessarily make a difference to the bigger
picture if there are too many properties available.
Rents will still drop and yours may rent for
the same price that the tenant would pay to
rent somewhere with no parking, no park and
so on. Public transport is seen as enhancing
a property's rentability. This may be the
case in high demand areas with little supply,
but does not always apply universally. It's
not about buses and trains - it's about rental
demand and supply.
4. Then, protect yourself from investor
flooding by doing some research.
You'll often find lots of new investors follow
hotspots. You can safeguard yourself from
a flood of rental properties just by researching
before you buy in. Hotspotting could have
an impact on the area and lead to some changes
to the letting market. Watch and check rental
price movements. This can indicate to you
what type of movement in demand is going on
in an area. If rental prices are rising, it
usually means there is more demand. If they
are dropping, there may be an increasing supply.
You may see further development taking place.
If so, it may be worth looking at the type
of developments. If these properties look
likely to be sought by investors, it may be
wise to steer clear. With increasing interest
in investing and the growing number of supply
companies, we are seeing a pattern of property
supply meeting investor rather than tenant
demand. But tenants come first in buy to let
- if there are no tenants, there is no rent.
5. Remember the basics and the profit
should follow.
BTL is all about demand and supply.
In a nutshell, some areas now have an oversupply
of rental property while other areas do not
have enough. This will often cause rents to
drop in the areas of oversupply and rents
to rise in the areas of low supply but high
demand. This type of buying inevitability
causes some investors to lose out and others
to make a small fortune. As an individual
Investor you have an impact on the multiple
markets out there! So it is important to think
carefully before adding your own supply of
property to the marketplace. It is not for
us to decide what we think people need to
live in and then going out to buy into countless
two-bedroom two-bathroom luxury apartments.
What we need to do, if we are to make a success
in our profession, is actually to look for
rental demand and buy what our tenants are
asking for!
Find Out More:
Discover how to find rental demand and identify
the questions to ask your letting agents.
Visit www.housemouseuk.com for information
supplied by investors, for investors, to help
protect us all from buy-to-let flooding.
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