How to select a property for Buy to Let

but-to-let-mortgage-adviceChoosing you property depends on the type of tenant you are looking for rather than the type of property you yourself would like to live in. Put yourself in the shoes of your target tenant and what their needs are.

Students, young professionals and families all have different wants. Access to schools, transport links, size of property, storage space, décor, local amenities, garden or not? These factors will be a different priority to different market sectors.

Getting this right will increase the appeal of the property and limit rental voids.

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Should I buy a freehold or a leasehold property for investment?

In many areas 2 and 3 bed houses are the most desirable and easiest to let out to families, however flats are also a popular choice especially in city centres. However these properties have different types of ownership and it is important to understand the impact on you as an investor.

The vast majority of houses are on a freehold basis, meaning that you own the property and the land it is on outright which gives you much more control. As the freeholder you are responsible for the upkeep of the building and any repairs.

You will also need to take out landlords buildings insurance.

Flats however are most likely to be leasehold, which means that you have the right to occupy a property a property for a set period of time (the length of the lease), but do not own the building itself. If you ‘buy’ a leasehold flat, you don’t actually own the property. All you own is the right to live there for a specified period of time – however much time remains on the lease. Many leases are granted on a 99-year term while some run for 999 years.

Most banks and building societies are happy to lend on property that has at least 75 years unexpired on the lease.

At the end of the lease the property will revert back to the freeholder, however there is generally the option to purchase an extension. A leasehold property will come with ground rent and service charges to cover maintenance and repairs. These costs are normally the landlords responsibility (rather than being passed onto the tenant) and should be factored into your investment calculations.

There is now also an option known as Share of Freehold whereby the owners of leasehold flats buying the freehold off the freeholder and then all owning a share of it.

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Consider looking further afield

Many investors purchase property close to where they live. The advantages are clear as there is existing knowledge of the local market and the comfort that comes with that. If you are managing the property yourself then this makes it much more convenient.

But your home town may not offer the best return and buying additional properties near your home exposes you to local market anomalies. It maybe worth considering other areas to spread the risk. If you are employing an agent to manage the property then they are responsible for keeping an eye on it and it’s proximity to your home should not be an overriding consideration.

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Price Negotiation

Do not allow yourself to be swayed by emotion or persuasive estate agents. Use your Yield and Return on Investment figures to establish the price you wish to pay.

You are at an advantage against residential purchasers as generally they are dependent on the sale of their own home. By not being part of a chain your purchase is less likely to fall through making you a more attractive proposition to the vendor. Use this to your advantage.

Start low, negotiate hard and do not be afraid to walk away if the price is not right.

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