Choosing the Right Buy-To-Let Property to Invest In: A Guide
What makes the best buy to let properties so great and which properties give the best return on investment?
Property is no longer a short-term gamble on quick capital growth gains... For many investors, it has gone full circle and is now back to how it should have always been.... all about the cash flow and the security of the asset.
Arguably therefore with cash flow in mind, one of the most important factors when considering property as an investment is the rental yield.
However it’s no good just having a yield on paper that looks great, it also needs to be achievable.
This is why choosing the right property is key... because reducing expenses (minimising rental voids, arrears and even maintenance) and maximising return, can both be achieved by selecting the right tenants and the right style of property, early on in your search.
So the first part of the equation (where the style of the property plays a large role) is in reducing your expenses. Maintenance can be a big part of this and the age of the building and style will certainly affect it.
Regardless of where you invest, you will notice certain property styles will tend to dominate. Medieval York, Georgian Bath, Regency Brighton and Victorian Manchester are just some of the styles you will see that define an area.
Add to the mix the range of 1930’s housing estates, modern flats or ex-council developments, and you start to see the array of choices you have for your buy to let investment.
So which property style is best?
Well that depends on your area as to which property styles you have available, and also your personal strategy> (Are you looking for a refurbishment project or a ready to let investment?)
But to reduce your ongoing costs you need to consider that each of these property styles come with their own challenges for maintenance.
It goes without saying that the newer the building, the fewer costs you should incur, but one caveat to this is with new-build flats. Typically these come with high service charges and large ongoing maintenance funds which can easily eat into your rental yield and property profits.
Ex-council houses are generally very well built and were maintained well by the councils until many passed into private ownership in the ’80s & ’90s with right-to-buy schemes.
These can make great investments in the right areas, as they also have good room sizes and large gardens, which tend to attract long-term family tenants.
Many larger Victorian terraces (like in the Manchester area) can also attract long term tenants. This is because the style, layout and size provide fantastic space for couples and families alike.
Depending on your appetite, there’s also a case for short-term tenancies and room lets as these can provide very high rental yields. But for reducing costs and keeping rental voids and maintenance low, there’s no substitute for long-term tenancies.
So often it can be best to focus on properties and homes which can provide for this market with good sized bedrooms and space for tenants to grow in to.
Therefore to reduce your expenses, it’s important to consider the property styles in your area that have less associated ongoing maintenance costs and will suit longer-term tenancies (traditionally families or older tenants) if you want the best buy to let properties for your investment.
Rental values have grown consistently in the UK since 2009 as shown in many industry reports including the Homelet rental index which shows rental statistics broken down by region.
With rental becoming the only option for most residents, tenant demand is high for all property types.
But in an April press release from the UK’s largest lettings agent, Countrywide, they state that one and two-bedroom properties provide the highest rental returns for investors.
I can see why the figures behind this back up the report as larger properties are typically higher in value, and the increase in property value doesn’t always correspond to a proportionate increase in rental income, hence the differing yields.
However from experience what I have personally noticed is that many tenants in smaller properties, tend to stay for shorter periods of time, because as their needs change, so do their demands for the property size.
Often these tenants move on for work opportunities, or because they have outgrown these smaller properties with their family.
These properties, therefore, tend to have a higher turnover of tenants, which leads to greater costs with tenant find fees and rental voids.
The best buy to let properties for maximising returns ultimately depends on the rental yields for your area (a number of areas in the North West will achieve around 8%+ yields) and which tenant profile has the most long-term demand.
But as a rule of thumb, 2 or more bedroom properties and homes with gardens tend to attract more long-term tenants.
So when it comes to maximising your return on investment, it’s not just about the headline yields... it’s also about reducing costs and making sure the property investment you pick, will fit the ever-changing needs & demands of your area’s tenant market.