The buy-to-let industry is nothing new; people have been renting property from landlords since the earliest time of property ownership, but in recent years the man in the street has had unprecedented access to property finance for investment purposes as lenders fell over themselves to offer buy-to-let finance.
However, since last September’s credit crunch, the cost of finance for the lenders has increased and they are reviewing their lending criteria, preferring to offer finance to investment opportunities that represent the cream of the crop.
The time has never been better to review the 10 Golden Rules of Property Investment and here, Young Group’s COO, and winner of the Bradford & Bingley Property Woman of the Year 2008 award for London, Sylvana Young, shares her top 10 do’s and don’ts for sound property investment.
1. Research, research, research – know the area you are buying into, regeneration plans and new tube stations are great indicators of up and coming areas and capital appreciation. Apply the 10 minute rule for access to transport links, bars & restaurants and local amenities.
2. Location – consider who your ideal tenants will be. To attract quality tenants you need quality locations.
3. Buy well – consider both price & content. Research prices in the area and look for comparables. Can white goods, flooring or furnishing be included in the purchase?
4. 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.
5. Appoint the right advisors – trusting your mortgage advisor is imperative. A regulated advisor can secure the best deals free from fees and aligned to your investment strategy. Good letting agents will minimise void periods. Remember that not all solicitors are off-plan specialists.
6. Don’t 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 and I would encourage people to build a sustainable, appropriately geared portfolio over a number of years.
7. Never ignore the basics of supply and demand – speak to local agents to find out what’s needed in your chosen area. The markets for 1 bedroom flats and 4 bedroom houses do not follow the same patterns.
8. Don’t be influenced by your emotions – you’re 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.
9. 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 NHBC or Zurich 10 year warranty.
10. Never pay over the odds – avoid paying finders fees, commissions or subscriptions to agents or advisors, particularly prior to completion. If the investment proposition is a sound one there should be no reason to pay up front fees.
Finally, remember anyone can buy property; your aim is to buy an investment that will generate long-term wealth. Chosen appropriately, there are plenty of solid investment opportunities out there for which suitable finance is readily available.