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Buy-to-let investment: 10 golden rules

Wednesday, 5 March 2008 12:00 AM

Buy-to-let property has been one of the biggest success stories of the previous decade in the UK property market.

While prices have increased capital appreciation has provided huge rewards for savvy investors and encouraged many more to enter the market.
In addition, rent has also increased following a rise in demand as potential buyers are excluded from the ownership by deteriorating affordability and are forced to remain in temporary accommodation.

But, with lenders now tightening borrowing criteria following the credit crunch, moving into the investment property sector has become potentially more difficult.

In response Sylvana Young, chief operating officer of property portfolio managers Young Group, has developed a guide for investors looking to buy residential property.

Ms Young - winner of the Bradford & Bingley Property Woman of the Year award for London in 2008 - here offers five simple dos and five simple don'ts for the property investment world:

The dos

  • Research, research, research: Know the area you are buying into. For example, regeneration plans and new tube stations are great indicators of up-and-coming areas and capital appreciation. Also, it can be useful to apply the ten minute rule for access to transport links, bars, restaurants and local amenities.
  • Location, location, location: Consider who your ideal tenants will be. And always remember, to attract quality tenants, you need quality locations.
  • Buy well: Consider both price and content. Research prices in the area and look for comparables. And consider whether white goods, flooring or furnishing be included in the purchase.
  • Make sure the numbers work: Most wealth is created through capital appreciation, so buy a property that supports this type of growth. Ensure you include all costs in your financial projections (such as legal fees, stamp duty, service charges, ground rent, contingency to accommodate void periods between tenants etc). These costs are all too often ignored leading to negative monthly cash flows.
  • Appoint the right advisers: Trusting your mortgage adviser is imperative. A regulated adviser can secure the best deals free from fees and aligned to your investment strategy. Good letting agents will minimise void periods. Remember not all solicitors are off-plan specialists.

The don'ts

  • Don not expect to 'get rich quick': Property investment should be approached with a long-term view. It is an asset class that in the medium to long-term has outperformed all other asset classes it is advisable to build a sustainable, appropriately geared portfolio over a number of years.
  • Never ignore the basics of supply and demand: Speak to local agents to find out what is needed in your chosen area. For example, the markets for one-bedroom flats and four-bedroom houses do not follow the same patterns.
  • Do not be influenced by your emotions: You are not living in your investment so decorate and furnish at an appropriate level of quality. Speak to local agents to understand what quality is required. Don't be tempted to furnish cheaply if you want to retain quality tenants.
  • Never be swayed by gimmicks: Be wary of incentives, particularly 'no money down' deals, get rich quick schemes or developments where you are under pressure to sign up quickly to secure the 'deal of the day', and never buy an off plan / new property without the guarantee of either an New Homes Marketing Board (NHBC) or Zurich ten-year warranty.
  • Never pay over the odds: Avoid paying finders' fees, commissions or subscriptions to agents or advisers, particularly prior to completion. If the investment proposition is a sound one there should be no reason to pay up-front fees.

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