Finding your next investment property

Updated May 2016

Introduction

Who wants to be the landlord of buy to let property? A very large number of people to judge by current reports and commentaries.  In fact, the number of buy-to-let mortgages in March 2016 were up 142% annually, though some of this may be attributable to investors scrambling to beat the stamp duty hike in April.

So, how might you go about finding your next investment property as the foundation for a thriving buy to let business?

The attractions

Block of fFatsAs with many instances of financial planning and decision making, the choice of a buy to let investment typically results from a consideration of the alternatives and an assessment of the options most likely to suit individual needs and circumstances.

In the case of a decision to invest in property to let, some of those considerations for individuals with money they want to make work for them are likely to include:

  • very low interest rates mean that the poor return on savings makes this option an unattractive choice;
  • according to a report in the Telegraph (April 2015), over the past few decades, average returns on buy to let investments have outstripped yields from all forms of savings, stocks and shares;
  • the stock market provides a well-established, traditional forum in which to seek more favourable returns on an investment, but that market at the moment seems especially volatile and unreliable as a source of dependable income and a return on your investment;
  • the general state of the housing market means that many first time buyers – and even those home owners wanting to move house – are finding it difficult to raise the necessary deposit and so choose to rent, thus swelling the market of potential tenants from which landlords may pick and choose;
  • according to a report in the Independent newspaper towards the end of 2014, it is estimated that the ranks of tenants looking for accommodation in the private rented sector is likely to increase by some 1.2 million household by the year 2019;
  • buying to let is becoming a central focus of many retirement plans – especially following recent changes to the law on the withdrawal of pension funds – and the investment group Scottish Widows describes in a few case studies some of the advantages and pitfalls you might encounter in such retirement planning;
  • buy to let mortgages are generally available to suitably qualified borrowers – indeed, they may be more readily obtainable than standard mortgages for owner occupiers;
  • buy to let investors may still be able to take advantage of a number of different sources of loans and grants provided by local councils – from incentives to buy and refurbish previously empty homes, to the installation of energy saving materials and equipment in the let property;
  • the development of increasingly sophisticated ways of protecting your property investment through a whole range of insurance products for landlords – including, of course, those we offer here at Cover4LetProperty; and
  • increasingly novel ways of finding your next investment property – the principal purpose of this guide, which offers some of the approaches you might want to consider.

If you are looking to buy such an investment property and take to running a business as a landlord, therefore, this guide is intended to help kick off your search.

Property groups

The corporate level

If you want to enjoy some of the benefits of the current yields available from the rented property market, but are happy to keep your distance from the necessity of owning your own buy to let property, with the often day to day hassles that go with it in working as a landlord, investment in a property group might provide a solution.

Just as the term suggests, a property group or property company is simply the name given to a company whose primary activity is investment in the property market in order to generate profits for shareholders. They manage this portfolio of properties by buying and selling according to the changing values and appreciation of capital values and take steady income from letting the properties – whether residential or non-residential – on a commercial basis.

Relatively recently, changes in corporate law have allowed some property groups and companies to convert to what are real estate investment trusts (REITs). These enjoy certain advantages over other companies, most notably a freedom from the need to pay corporation tax on profits from their operations that derive from rental income. Because they pay no corporation tax, therefore, the profit accruing to shareholders is theoretically enhanced.

A description of the way in which a REIT works and links to other resources about commercial investment in property or real estate may be found on the website maintained by the British Property Federation (BPF).

Finding your next investment property in this case is as simple as instructing someone else to do so on your behalf.

The individual level

There is nothing to stop any group of individuals, however, from taking a leaf out of the property company’s book by setting up their own property group in order to acquire buy to let property and manage it as landlords.

The Property Geek, for instance, describes ways in which you might want to set up what is effectively a joint venture with another investor or group of investors to form your own buy to let business. The partnership you create may depend on your own contribution in terms of financing the purchase and running of the business, but might equally operate on the basis of your carrying out the day to day role of landlord in return for a share of the profits.

Alternatively, you might offer your services as the facilitator or promoter of investment in buy to let property which you have been able to identify and negotiate the purchase of on behalf of a private group of individual investors.

Estate agents

propertyFor anyone interested in buying any type of property, of course, the estate agent is probably the best known and long established source of information, advice and facilitator of your intended purchase.

If your quest is specifically for investment in buy to let property, one of the problems you might encounter is simply sifting through a whole welter of listings for residential and commercial properties in order to identify those that may be suitable for you to buy as a landlord.

Traditionally, estate agents might have found it difficult to keep track of properties suitable for buying to let and distinguishing them from all the other potential sales on their books. However, with the currently burgeoning market in buy to let properties, estate agents, too, have become more adept in spotting the opportunities and passing the information on to potential buyers – it is in the interest of the estate agents themselves after all.

In the past, estate agents operated almost exclusively from relatively small high street offices, where their knowledge of the local scene and experience in the particular market conditions in the area – including the ability to spot property with the potential for buying to let – has proved a boon.

Practically every high street the length and breadth of the country continues to have at least one or two such estate agencies and you might want to keep a close eye on their listings in your quest for your next investment property as well as build relationships with them. That way, when something suitable comes up, you’ll be among the first to know.

The age of the internet, of course, has widened considerably the net it is possible for online estate agents to cast. If you are looking to invest in a property some way away from where you live, and have an open mind about where in the country you might want to buy, a good place to start may be browsing online.

If you want to home in on a particular area of the country, then even locally-based, more traditional estate agents are these days also likely to have a presence online.

Whether on the high street or on the internet, estate agents may be able to offer a wealth of advice about local conditions in the property market and a history of recent sales in the area. Modern technology has also helped to bring you high-quality photographs, location maps and even street views of the listed properties.

For all this, however, there is unlikely to be any better alternative but to visit the area yourself, visit any particular property in which you are interested, get a feel for the rental potential of properties in the area and find out what levels of rent similar properties may be commanding.

Rental returns against the cost of buying and running your buy to let property of course may give you a handle on the anticipated yield from your investment.

Online

The search for suitable investment property has been so transformed by the internet that it may be worthwhile looking in a little more detail about the relationship between landlords and the increasing number of online opportunities.

Property search

There are now a number of major, national chains relying entirely on the internet to identify and list property for sale and for rent.

The website listings typically indicate the price, size and general condition of the property, together with a scalable map identifying its location. In many cases, the website also lists similar properties in the same area and many also state the price for which similar properties have recently been sold.

An online property search represents probably one of the first – and easiest – places to start your search for a property that may be suitable for buying to let. That potential might be suggested by the online listing, but only your own judgment as the possible future landlord is likely to determine which properties might and those which might not represent the best investment opportunities.

Letting agents

Whilst you are conducting investment searches online, you might also want to turn your attention to the potential advantages in putting the eventual letting of any property you buy into the hands of a letting agent.

Letting agents, too, have traditionally relied upon a high street presence to attract clients for their services. With the growth in a number of online agents, however, landlords enjoy a much greater competition for that business and, with it of course, the potential for lower fees.

Whether you instruct a local agent or one you have found online in order to manage your lettings, select suitable tenants and perform all the background checks on your behalf, you may find that by being released from such time-consuming duties you may find more productive and profitable ways of spending your time as a landlord.

Insurance

Insurance is likely to be one of the first lines of defence in any landlord’s protection of the investment he has made.

By visiting a specialist provider of insurance for landlords – such as those of us here at Cover4LetProperty – you can request a quote for the cover you need online and buy if you like the cover provided and the price!

Off Plan

renovation buildingBuying a property off plan means that you are putting down the money for the purchase now of a dwelling or commercial unit which has not yet been built and cannot therefore be let until it is finished. So why do it?

The rationale is really quite simple: if you buy now, at the current market price, by the time the building is completed, you anticipate that it is going to have appreciated in capital value.

The rationale may be simple and straight forward, but the chances of success and the opportunity for turning a tidy profit are likely to be less so. Success of course depends not only on the price you have to pay at the moment, but also your calculation of what the development may be worth on completion.

As becomes clear in a guide to buying property off plan – published by the online agents Prime Location – these are transactions that may be more likely to attract property developers and speculators rather than the buy to let landlord. At the heart of the concept of buying off plan is the anticipated increase in the capital value of the property.

Appreciation in capital value is of course something of major benefit to the buy to let landlord, although the reliability of a steady income stream from rents may be a more immediate concern – indeed, rental income rather than any anticipated increase in capital value of the let property is likely to be the factor of greatest interest and concern to any buy to let mortgage lender.

Nevertheless, your investment in buy to let property is likely to be motivated by the twin objectives of rental income and appreciation in the capital value of the property.

If you are considering buying off plan, therefore, you may want to weigh up carefully the price you are being asked to pay now against your estimate of what it might be worth on completion and the day on which your first tenants move in.

The discussion so far has been all about your scouring the market for potential investment properties which are already being offered for sale.

To tackle your quest from the opposite direction, you might also want to consider the benefits of advertising your interest in buying such a property:

  • it is you – not the seller – who is able to specify the type of property you want and how much you are prepared to pay for it;
  • if the property has not yet been advertised for sale, you are likely to be the first in line for any bidding and in a stronger position to buy at a more favourable price;
  • if you remain the only potential buyer, your negotiations with the vendor are simpler, more direct and likely to be more successful.

When it comes to places in which to advertise your interest in buying a property with the potential for it to be let, the same broad rules apply as when you are browsing and shopping around for properties already being offered for sale – cast your net as wide as possible. This might include giving instructions or taking out advertisements as follows:

  • estate agents give notice to potential vendors of the types of property that are wanted – so you might consider instructing an estate agent;
  • this might be by way of a visit to the estate agent on your high street or by arranging a listing on one of the many online websites;
  • your local council may from time offer for sale to potential landlords rundown or empty property in need of renovation and refurbishment to a modern standard – you might want to let them know in advance that you might be an interested in buyer of such property;
  • a number of printed magazines and newspapers also carry classified advertisements for property that might be wanted by particular buyers;
  • even a card posted on the wanted and for sale boards at your local supermarket or in the newsagent’s window might bring to light owners who had not yet got around to advertising their property – let alone having considered whether there might be an interested buyer; and
  • by making it known to friends, relatives and fellow landlords that you are in the market for the purchase of buy to let property, you may again unearth some willing vendors.

When advertising or advising others of your interest in investing in buy to let property you might need to strike a fine balance between describing what you are after in detail, but also leaving sufficient flexibility to receive offers of less immediately likely property. Sounds like a tall order? Tall orders like that may be among the keys to successful investment in buy to let property.

Auctions

What could be simpler and more straight forward than buying something at a drop of the hammer?

The answer is perhaps nothing at all, but in the case of the purchase being an investment in your next buy to let investment when the auctioneer’s gavel falls you are likely to be fully committed to a very significant outlay. It may be a very quick and uncomplicated way of purchasing your property, but therein lies probably the greatest danger – buying at auction is not for the faint-hearted.

If you have never attended a property auction before, still less made a purchase at one, the BBC’s Lucy Alexander – of Homes under the Hammer fame – suggests that you simply sit in on an upcoming auction to observe the proceedings without entering the bidding.

Once you have gathered the courage to attend an auction with an intention to bid and maybe even walk away with a purchase, your research of the properties in which you might be interested is even more important than when buying elsewhere.

This means getting hold of the auction house’s catalogue at the earliest opportunity, identifying those properties in which you might be interested and then arranging a first-hand viewing of each of them.

Your physical inspection of the property may involve all the usual checks needed to check its condition and you might want the reassurance of a surveyor’s opinion on this. In the case of a purchase at auction, you might also want to check that the details published in the catalogue match up to what you are able to see and find out for yourself.

Come the day and you are ready to enter the fray of bidding, remember that if the auctioneer’s hammer falls on your successful bid, you are at that moment entering into a legally binding contract to complete the purchase.

Therefore, you need to be certain that you have the 10% deposit that you need to pay on that very day and access to the balance which is typically payable within 28 days of the auction. It goes without saying, therefore, that if you are intending to buy with the help of a mortgage, you need to have sorted out all of the lender’s requirements well in advance.

Buying an investment property at auction has the potentially considerable advantage of taking just a few minutes rather than the long winded processes of other routes to purchase. It may offer a market in which you are able to strike a very favourable bargain – provided you have been meticulous in your research beforehand.

Summary

If you are looking to invest in a business or preparing your retirement plan, the purchase of buy to let property may make a great deal of sense. There is evidence to show that the yields on such an investment have outstripped savings, stocks and shares for almost the past two decades.

If you are interested in making such an investment, there is no shortage of places to look, including:

  • property groups;
  • estate agents’ listings;
  • online listings;
  • advertised off plan purchases;
  • announcing that you are in the market and advertising for the particular type of property you want; or
  • buying your investment property at auction.

Some of these may offer more direct opportunities for finding your ideal investment property than others, and some may require the nerve of the more seasoned investor. Whether cautious or brave, though, you may find that let property continues to make a sound investment.