Investing in property can be a great opportunity to generate a fantastic amount of additional income, but buying your first rental property should be treated like any other substantial investment, as it does have risks and the pros and cons need to be carefully considered.
Conducting thorough research can help protect you from encountering problems and costly repairs and maintenance down the line. We have some tips for the first time buy to rent investor and some important points to research and consider.
1. Being a Landlord is a Responsibility
When you have purchased a property and listed it for rent, you then take on the responsibility of being a landlord. This can entail repairs, maintenance, and any issues with the property then fall on your shoulders.
If your knowledge of building maintenance is limited, then you will need to rely on handymen or estate and property managers. But bear in mind that each job or call out that your contractors take on will incur a call-out fee that could chip away at your profits.
For this reason, many landlords may choose to undertake repairs and maintenance themselves, but if you own an older property that may need many repairs, it will also take a lot of your time.
To avoid costly call out or never-ending maintenance, it is advisable to possess some knowledge of general property maintenance.
2. Location is everything
Once you are ready to invest in your first property, it can be tempting to snap out the first good deal you see. But it is worth researching the area that your potential property is in.
Areas that have closed shops, abandoned buildings, or are too far from conveniences and facilities and transport links will be difficult to attract tenants, as well as charging a good price for.
3. Evaluate whether to buy or finance
There are benefits to either purchasing a property outright, or financing it with a mortgage, and it will depend on your personal circumstances, finances, and your goals.
Owning the property outright will generate a positive monthly income. For example, a cash buyer could see £9,500 received in annual earnings, or a 9.5 per cent annual return, on a property that costs £100,000 to purchase once rental income, taxes, income tax and depreciation have been calculated.
However, financing a property may also provide good returns. An investor who puts down 20 per cent on a house could see earnings of around £5,580 per year once a 4 per cent mortgage rate, operating expenses and additional interest have been calculated.
Whilst cash flow is slightly lower for the investor, their 27.9 per cent annual return on the original £20,000 works out much higher than the outright purchasers 9.5 per cent in the long term.
4. Calculate expenses and unexpected outgoings
The operating expenses for your new property will likely result in around 35 to 80 per cent of your gross operating income. A landlord charging £1,500 for rent, but whose expenses tot up to £600 a month will see 40 per cent operating expenses.
It won’t only be maintenance and upkeep that take chunks out of your income, emergencies such as roof repair, burst pipes, and unforeseen damages could take another 20 to 30 per cent. Ensure you have a buffer fund for the unexpected.
5. Know Your Legalities
You need to be familiar with the landlord and tenant laws, and half of being a good landlord is to ensure you have good relationships with your tenants by ensuring that both parties are protected.
Having a full understanding of tenant rights and landlord’s obligations regarding security deposits, eviction rules, fair housing and more can save costly and stressful situations further down the line.
If you need letting agents in Forest Hill for your new property, talk to us today!