1) Yield or Capital Appreciation, or both?
Why are you buying this property? Do you want to make money on a monthly basis, or are you more interested in making money on the value of the property over a period of time? Or do you want a little bit of both? Your requirements here will shape where in you look for property - some areas offer a much better yield, others have better long term prospects. Rarely does an area have everything (or we'd all be shopping for property there!) but some offer a happy medium.
2) Research the market.
A lot of research you can do yourself. These days information is very freely available on the internet, regarding what price properties are advertised at and what properties have sold at. If you're being asked to pay £500k for a property when the identical one next door recently sold for £450k, you need to ask yourself why. Equally you can see for yourself what similar properties rent for nearby - a property nearly always achieves within £50 of the asking price, unless the asking price is over £2000pcm in which case the variance can be greater.
3) DON'T listen to an estate agent.
This is the classic mistake to make! An estate agent is paid by a vendor to sell a property. If they don't sell it, they don't get paid. As such an agent will say pretty much anything to get a person to buy. Estate agents get criticised for this, but commercially it's perfectly logical. As such when an agent is telling you the price is a good one, or the property will rent for far more than you thought it would, or that the internal condition doesn't matter because it's only a rental property, don't believe them without doing further research. In my experience as a letting agent, I've lost count of the number of landlords that have sworn blind that their property is worth more than it is, because the selling agent told them it was - people fall for this again and again and again.
4) DO listen to a lettings agent.
I would say this, wouldn't I, but again it's commercially logical. A lettings agent doesn't make a penny out of a landlord if the property sits empty. As such it's in the lettings agents interest for the landlord to get a property that rents easily, quickly, and consistently. If you buy something that's tricky to let, it will cost me a fortune! As such we have some shared interest! :o)
5) Be sceptical about leasehold properties.
Landlords are often attracted to leasehold properties as they often trade for less, there are usually deals to be done, and there's a perception that tenants like flats. Whilst, to an extent, the latter point is true, tenants only like flats because they tend to be modern inside - give tenants a modern house and they'll take that every time. Reasons to be cautious about leasehold properties are:
a) you pay the service charge, which can kill your rental yield. You also still pay for anything that goes wrong inside the flat, so don't think you're saving too much on maintenance and upkeep.
b) if the lease runs down, so does the value of your investment. Extending a lease costs £££.
c) you have little control over the communal areas. If there are problems with maintenance and condition, it's really hard for you to directly affect, and it will hit the rentability of your property.
d) modern flats were savaged on price more than any other type of property in the last housing slump. Equally when ever a plot of land becomes available, it's flats that go up these days, whereas small houses rarely get built. As such, due to supply and demand, it's hard to see flats appreciating in value at the same rate as houses.
So that's 1-5, next week it's 6-10!
Rebecca Smith
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