Jeff Knight of Foundation Home Loans considers six concerns for pursuing Buy to Let property
Every day the news seems to suggest the buy to let market is set for some form of meltdown or mass exodus of landlords. So, if you are wondering whether to grow your portfolio, all the negative talk is probably not what you want to hear. Fortunately, expert insight indicates a mass exit by landlords is not something we can expect, at least over the next few years. The Buy to Let market is here to stay, but nonetheless not everyone wants to be a landlord, or indeed should be. Having an investment property has many benefits, as well as risks, and there is much to consider before doing so.
Here are just six things worth pondering:
- Reasons must be cheerful
You must have a good reason for entering the Buy to Let market as a landlord. Investing in property, while offering a wide range of benefits, should only be done with your eyes wide open. Too often, younger landlords get invested off the back of their family and friends’ advice. It’s your money and your time you’re risking, and it must be your decision alone. Recently, an extensive piece of landlord sentiment research was conducted to identify any operational and behavioural differences among landlords of varying ages and regional areas. To do this, 1,000 landlords from across the country were surveyed, and asked a series of questions relating to property management, property preferences and the reasons behind their decision to invest in buy-to-let. One of the most common reasons was for the long-term financial prospects, which were indicated to be supporting future retirement income. Interestingly though, about 1 in 5 became a landlord by ‘accident’, meaning they could have either inherited the property or gained it through marriage. Should this happen to you, you will still need to challenge yourself about if you want to be a landlord for the long haul. Managing one or several properties can be a handful, particularly if this is only a side venture to a full-time job.
- Location. Location. Location.
Pre-credit crunch, there were many stories of Buy to Let investors who lost money because they bought in areas they were unfamiliar with, or had not done enough background research on. Most landlords seem to buy property in areas in proximity to where they live – areas they know and feel most comfortable in. For example, 84 per cent of the landlords surveyed operating in London have Buy to Let properties in London, whereas for those operating in the East of England, this was lower at 78 per cent and for the South West of England at 75 per cent. Lesson being: there are others who may look to diversify to other parts of the country, but to be successful you must do your homework.
- Know your audience
Ask yourself, who would be the most suitable tenant for me and my property? Middle-aged couples were found to be the most popular tenant choice, at 21 per cent, followed by families with children at 16 per cent. However, it’s worth noting, one in four landlords said they do not have a preferred type of tenant. But if you do, this needs to be brought into the mix when choosing a property and location to ensure the needs of your prospective renters are being met, and your property is being used to its full potential.
- Time management
Owning a property is likely to take up some of your time, in fact only 21 per cent of landlords operate on a full-time basis. The rest work full-time (60 per cent) or part-time (19 per cent). Paperwork details, housing maintenance, repair and damage work, and even distance to the property, will carve up the time you can dedicate to this – just imagine if you had several properties to check up on!
- Limited company
You need to think about whether to set up as a limited company or not. This is becoming more popular but it is not a panacea for all, which is why it is important to seek tax advice. It is also important to seek advice if you need a Buy to Let mortgage to fund the property purchase. This will save you a lot of time and hassle than if you did so yourself.
- Where’s the exit?
It may not seem like a priority concern, particularly after going through how and why to get involved in this thriving sector; but having an exit strategy must form a part of your management plan. Considering how quickly and easily you can sell up in the future, should you choose to, or whether the property will be part of your estate, planning is key, and will help safeguard your finances for the future.
Jeff Knight is the director of marketing at Foundation Home Loans