So, you’ve decided to become a landlord. You have an exciting and, hopefully, prosperous journey ahead of you! But one of the first major steps is to find yourself the perfect rental property to kick off this new venture and start your potential portfolio.
There is a multitude of things to consider when choosing the right property to let to future tenants. In this article, we’re going to offer invaluable guidance to help you make the right decision and find the right investment for you.
Consider the location
It might seem obvious, but location really matters when you’re purchasing an investment property. Not all locations are set up for renters and some locations are much more popular within the rental market than others, so you want to be sure you’re not missing the mark when house hunting.
Not only will the location of a property massively affect its sales price and rental yield, but it may also dictate how easy it will be to find tenants. Do your research on which areas match your budget in terms of house prices and make sure you invest in an area that’s set up for renters or the type of tenant that you want to rent to. For instance, a townhouse in a commuter town could be the perfect option for young working professional couples looking for a home to rent.
There’s not much point you investing your time, energy and of course money into a property if it’s not going to make you some kind of profit. The least that you should expect back from a rental property is rent. If you are taking out a mortgage in order to make your investment happen, the rent will at least need to cover your mortgage repayments, taxes, insurance and of course, a little extra for your pocket.
You should work out your rental yield on any potential property before committing. The rental yield is a percentage figure and shows the revenue that you earn, or can expect to earn from your investment. To work out your rental yield, take the monthly rental income amount or expected rental income and multiply it by 12. Then, divide it by the property’s purchase price or current market value and multiply this figure by 100 to get the percentage. Ideally, you want a rental yield of 7% or more. Any less than this, and it might not make financial sense.
Type of property
You must also consider what type of property is going to suit you best to invest in. This may depend partially on where you plan on buying and the type of tenant you’d prefer to rent to. For instance, if your chosen location is a suburban area then you may be better looking for a slightly larger home well suited to families with 2+ bedrooms and a garden.
However remember, many families will be looking for the security of buying a property and eventually getting on the ladder. That’s why smaller family starter homes can be perfect to rent out whilst families save to buy.
Looking to purchase in more built-up cosmopolitan areas? Consider apartments and flats that are perfect for professionals and couples. Perhaps you can buy close to a college campus and become a student landlord. Investing in a HMO (house in multiple occupation) property can be a pretty different landlord experience and you may want to lean on the expertise of a letting agent, but this can be hugely profitable.
Buying an older house could potentially save you a little money but it could also present you with issues. Repairs can become a real headache for landlords and tenants and are generally more common in older properties.
When viewing a property, check the condition of windows, doors, roof tiles, boilers and pipes if possible. You could even hire a professional to do this for you. Being clued up on a property’s condition before you purchase can help you to avoid issues in the future. Newer properties may be preferable but remember – some tenants won’t necessarily treat the property in the same way that you would so expect some fair wear and tear.
Whatever property you purchase, make sure to present it in the best way possible when marketing it to prospective tenants. A fresh lick of paint (preferably in something neutral to please the masses) and perhaps new carpets can go a long way in making your property more attractive than the competition.
Whatever the type of property you choose to invest in and whatever the location, make sure that you are covered against all eventualities with landlord insurance. You can compare landlord insurance online to secure a deal that covers your needs without breaking the bank. Good look and happy house hunting.