What’s the best advice for buying a rental property? In this article, we share our top tips for investing in UK rental property and the considerations to make before investing.
Having years of experience sourcing opportunities, helping those buying their first investment property and overseeing the purchasing of units adding to growing portfolios, we’re often asked for guidance from investors at all stages in their investment journey.
Whether you’re a seasoned investor or one who’s just starting out, the UK property market is a constantly changing and dynamic marketplace in which to invest, yet there are certain fundamentals that remain constant when buying a rental property.
Tips for investing in property
If you’re planning to invest in property, especially if you’re a first-time investor, here are some tips for investing in property that will help you avoid the most common mistakes and allow you to make well-informed decisions:
Make a business plan
Not having a proper plan can be the undoing of any investor, no matter how good a property they purchase.
From tax implications to ongoing management, an investor should have a solid plan and contingencies in place.
If you’re new to investing and feel professional guidance would be beneficial, it’s prudent to consider working with a tax advisor and mortgage broker who can provide advice specific to your circumstance, it’s also important to find a reputable solicitor. Similarly, an investment consultant such as Thirlmere Deacon can advise on matters to do with where and what property you buy, based on your goals. Surrounding yourself with a knowledgeable and experienced team, from the outset, is an important part of the process.
Cash or finance
Whether you should buy a rental property using cash or finance is an ongoing debate but one that is simply answered by looking at the data. The benefit of buying property entirely with cash is that any rental income is immediately positive cash flow, and you will still gain capital appreciation.
Financing can offer a much greater return on investment. For a smaller cash sum, an investor can secure a buy-to-let mortgage and experience positive cash flow from rental income monthly, and whilst it might be a lower figure monthly after paying the mortgage, the % return on cash investment is far greater.
There is also a considerable difference when it comes to the return on the actual cash investment over time as an investor will reap the rewards of capital appreciation for the entire property value, including the mortgage amount from the bank. Those who choose to take a buy-to-let mortgage will enjoy the same capital appreciation as those who bought a property without financing yet will have only put down a fraction of the cash, resulting in a far higher return on investment.
Consider setting up a limited company
Before you begin looking for a rental property it’s worth considering which structure would work best for you – a tax advisor can provide specific advice but, in many cases, a limited company can be a cost-saving exercise.
Over the past few years, increasing numbers of landlords have set up buy-to-let companies having seen the benefits.
Where to invest
Where to invest in rental property is often one of the first considerations for an investor. It might be that a particular opportunity has piqued their interest, offering what they deem to be a good yield or excellent prospects for future capital growth.
Any investor should ensure they’ve completed thorough due diligence on each opportunity they consider; look at the history, the trends, and forecasts.
Those building a portfolio are wise to diversify when adding new rental properties. Having different properties in varying locations that appeal to a wider tenant base mitigates risk.
Avoid a fixer-upper
If you’re buying a property purely as a rental investment, it’s usually a good idea to avoid buying something that needs a lot of work. Whilst some investors have had good fortune buying fixer-uppers, doing renovation work, and then letting them out. If it’s not your field of expertise and you don’t have development experience, you can quickly be out of your depth and find it to be a costly project to commit to.
Tenants expect their rental property to be high quality and in perfect working order – a newer property or recently built one should be completed to this standard making it more appealing to potential tenants and less hassle for a landlord.
Professional property management
Unless you have property management experience it’s always a good idea to engage a professional property management company to oversee your investment. There are many rules and guidelines that a landlord must abide by, and industry standards that must be met – a property management company can ensure your rental investment is run smoothly.
H3 Do landlords need insurance?
Landlords have a responsibility to ensure the correct buildings insurance is in place and most buy-to-let mortgages will require that adequate buildings insurance is in place.
Whilst it is not a legal requirement for landlords to have a landlord specific insurance policy, it’s good practice to have this dedicated type of insurance as there are many things that a normal home insurance policy simply won’t cover.
Landlord specific insurance is a valuable tool when owning rental property. There are varying levels of cover available depending on what you feel is appropriate – an insurance broker can provide guidance if necessary.
From breakdowns to accidental damage by tenants, rent arrears and covering a shortfall should there be a void period – there are many circumstances in which a landlord specific insurance can be very useful.
Buying rental property in the UK
If you’re considering buying rental property in the UK and would like professional guidance from a team of seasoned investment consultants, then please do get in touch with us for a no obligation discussion regarding your plans to invest.
From where to invest to what to buy, Thirlmere Deacon is constantly analysing the property market, recognising opportunities, and sharing these with their investors once they’ve completed a thorough vetting process.