This article looks at the top three factors to consider before investing in a buy to let property, it helps you decide which properties are good or bad and also looks at ideas on exactly what you should look for and at when searching for a new property.
There is more to property investment than buying a property and finding a tenant to fill it. There are other elements that you need to consider before you invest to ensure that you receive a strong monthly cash flow and profits.
In this article we plan to break away from all the myths that can accompany buy-to-let properties and show you the 3 key areas you need to consider in order to experience real success in property investment.
One: Expected rental income
Location,
property type and size can affect how much you can reasonably charge on a rental property. For this reason it is important that you are aware of - from the beginning - how much rent your property can generate.
Let’s say for examples sake you invest in a property worth £145,000 which you know can generate a monthly cash flow of £550. With this information you can calculate your gross return:
£550 X 12 = £6,600
Now this is just the rental income of your property without any deductions. To truly recognise the potential of your rental property, you next need to factor in how much external expenses will affect this income.
Two: Annual Expenses
As a property investor there are two types of expenses which you will recurrently come across: fixed and variable.
Fixed: this stands for recurring expenses that you will have to annually pay for. These will traditionally include: property taxes, insurance, routine maintenance to the property and the possible cost of having a property manager.
Variable: there will be times when unforeseen factors will affect your expenses. These can be from anything as simple as replacing a water heater to doing roofing, flooring and plumbing repairs.
To ensure that you are prepared for such eventualities, it is good to set aside some extra cash that can be used in such instances. Do that and you can make sure that your expenses do not hurt your cash flow.
Our recommendation is to put approximately £1,000 aside. This should cover all major repairs.
Three: Risks of investing in rental properties
Like we said at the beginning there is much more to property investment than finding a rental property and renting it.
Alongside your research you need to consider what will happen if the following was to happen:
- your rental property sits empty for extended periods of time
- the legal costs of having to evict a bad tenant
- repairing property damages due to a bad tenant
Any one of these can happen and can in turn reduce your overall return if you are not careful.
So do the research, take the time and make sure you are prepared for every eventuality. It will be worth it in the end.
