Becoming a landlord is not a decision that should be taken lightly.
When you let out a rental property, there are a number of risks involved. Furthermore, you are contractually obliged to provide a safe and compliant home for your tenant.
If you are thinking of becoming a landlord, here are 5 questions to ask yourself to guide you to property investment success:
1. Why am I doing this?
People get into property investment for many reasons, mostly to do with financial freedom, a pension hedge, or leaving a legacy for their children.
The most important thing is to start with the end in mind. What is your goal? What time frame does it need to be achieved in? Finding the answers to these questions will help you “reverse engineer” your property business plan to ensure that your actions help you achieve your aims.
With nothing to aim for, its very easy to scatter gun and make expensive mistakes.
“If you aim at nothing, you will hit it every time”. ~ Zig Ziglar
Goals also keep us motivated to take continual action. Having something to aim for sets the wheels in motion.
2. What strategy should I adopt?
Property investment is a multi-discipline investment, although there are a number of aspects that are common throughout.
As property is never a case of “one size” fits all, you should choose a strategy that suits you and will help you achieve the goals you set.
The strategy you choose will depend on your financial situation, your existing skill set, the amount of time you have to devote to property, and your attitude to risk. It can even be affected by whether you have a supportive partner or not!
Property investment delivers two forms of income: monthly cash flow and the potential for capital appreciation.
It is unlikely that you will find both in the same area of the country, although you can strike a balance that suits your goals.
Unless you have deep pockets we would recommend that you invest for monthly net cash flow. That is money in your pocket at the end of the month. Capital appreciation is based on speculation and you are more likely to enjoy it if you can survive in property for the long term.
“Turnover is vanity, profit is sanity, but cash flow is reality”. ~ Author unknown
Most mortgage products are based on the rent covering the mortgage by 125%, so you will need to ensure that deals “stack up” if you are intending to use Buy to Let (BTL) finance.
3. Home or Away?
Most experienced landlords recommend that newbies start out investing close to home as you know the area, feel comfortable with it, and can visit the property more easily if the need arises.
Once you have a local BTL under your belt, and honed your landlord skills and experience, then you can consider buying property further afield.
Northwood have over 80 branches around the U.K. and we are always pleased to meet with landlords and help them determine the best rental prospects in the area.
4. Finances in place?
The typical BTL mortgage requires a minimum of a 25% deposit. You will typically need a clean credit rating and a minimum salary of £25K for BTL financing.
Not being a home owner in a chain is one of the advantages you can use to secure a discount on a property, so its important to make sure you are pre-qualified for finance with a broker (assuming that you are not buying for cash).
When you make an offer on a property, you will be asked how you are financing it, so it’s important to get your ducks in a row first, before viewing properties.
Furthermore, a reputable mortgage broker will be able to advise which mortgage products your personal circumstances give you access to, and this in turn will help determine the type of property deal you can aim for.
It is widely believed that working with a reputable mortgage broker will also help you build your portfolio more quickly.
5. Do I want to self-manage?
Property is a “people” business and you will have to learn how to manage tenants and a tenancy if you are going to self-manage. There is a time cost associated with this which should not be forgotten.
Landlords, by law, have to adhere to over 100 Government statutes and regulations in order to be compliant. If you are going to self-manage, then you need to be aware of such issues as to how to reference a tenant, how to protect the deposit and serve the prescribed information, how to ensure your property is gas safe, etc.
If you do not have time to undertake this steep learning curve, then a reputable lettings agent will undertake this work for you. There are generally different levels to choose from – from tenant find only to a fully managed service or even using a Guaranteed Rent service like ours.
What many novice landlords do, is start with a fully managed service in order to learn the ropes and reduce risks. As they become more competent and experienced, they can then take on more of the day to day running of the rental property.
Northwood is committed to upholding professional standards and are voluntary members of professional accreditation bodies such as ARLA, NALS and RICS. All Northwood agents are members of The Property Ombudsman and supporters of SAFEagent, which means they have recognised client money protection in place.
When you know the answers to the above 5 questions, you will have a clear way forward towards landlord success.
Northwood is here to help – whether it’s an informal chat about rentals in your area or a fully managed service with Guaranteed Rent, our 85 offices around the U.K. are at your service!
Anyone considering a BTL investment should first seek independent financial advice and ensure that they fully understand the returns that property can deliver.
Northwood is a leading supplier of Guaranteed Rent across the UK, giving landlords complete peace of mind that their rent will be paid each and every month.
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