Top 10 tips for property investment in London

More than 1.4 million people in the UK are buy to let landlords. Traditionally, it has been viewed as a stable market where low interest rates and high tenant demand have meant property investors have been able to fortunate enough to be able to build lucrative property portfolios over the past years. If however, you don’t wish to rely on luck alone, especially in times of more challenging market conditions, here are our top ten tips for buy-to-let property investment success.

1. Research what being a landlord involves

The financial crash in 2008 left many ‘accidental’ landlords who opted to rent their properties rather than sell in a weak market. Becoming a landlord however, can be a demanding role and not for everyone, so it is worth hiring a reputable letting agent that can manage either a single property, a block or an entire portfolio on your behalf.  It is also worth noting that instructing a sales agent to manage the letting of the property following completion isn’t always the best route to take. This is because their primary focus is to sell you a property and lettings has far less focus.  Using an agent who is dedicated solely to lettings will inevitably work harder to let your property.  Their focus should be to get you the best rental as quickly as possible and to the best quality, fully referenced tenant.

Read our guide to choosing a reputable letting agent.

It is also worth following ARLA Propertymark  and the National Landlords Association to keep abreast of market changes and legislation. Both associations offer services, advice and support to make sure you are well informed. Taking legal guidance on rental agreements and financial advice on rental yield versus cost is vital too. Increases in interest rates if you are taking a buy to let mortgage or fluctuations in exchange rates if you are an overseas investor can have a huge impact on the final acquisition cost so do ensure your rental yield covers all eventualities.

2. Do your sums

Part of the appeal of being a landlord is the potential returns on investment. Over the past decade, low interest rates have meant the equivalent amount in a saving scheme wouldn’t bring that kind of return. Of course, investors fortunate enough to not have to factor in borrowing costs will see far greater profits.

The cash flow equation wouldn’t be complete without factoring in other costs such as service charges, insurance premiums, letting agent fees, ground rent, replacing fixtures and fittings, potential void periods and taxes. Misjudging net rent and yield is a common problem (Net rent is the rental amount minus the running and maintenance costs). Experienced landlords will always ensure that their income offsets their borrowing and costs. Experienced landlords will make sure any unexpected costs are accounted for (such as void periods) and that the income generates a profit.

Get an instant valuation for your rental property or contact us for a free appraisal of what rent you can expect.

3. Be tax savvy

Stamp duty needs to be factored into costs at the point of purchase but there are other takes such as capital gains that investors have to take into account. It is wise to keep meticulous cash flow records for at least six years including expenses, invoices, receipts etc as there are a wide range of costs which can be offset against profits for tax purposes. For example, if you make a loss on your buy-to-let property, you can set it off against rental profits in future tax years. If you aren’t resident in the UK and use a letting agent for management there are some HMRC exemptions too. Landlords may no longer be able to claim tax back on interest rate payments but they can claim tax credit on their full rental income instead. Higher rate taxpayers with a large portfolio could enjoy tax benefits of setting up as a limited company. It is a complex area so to ensure you are paying the correct tax and making the most of any benefits, it is wise to take independent financial advice.

4. Know your mortgages and insurance

Interest rates have been low for a long time and financial experts are predicting future rises. Even if the rises are not large, there will be many landlords who are unable to balance the added expense against their budgets (especially if they have a many properties) and an increase in rents may not offset it. There are specialist landlord mortgages designed to help buffer the buy-to-let investor; even so, shop around for the best deal.

Insurance too may seem like just another cost but it is vital. Specialist policies can even cover contents risks, loss of rent, malicious damage as well as appliances, heating and plumbing.

Get up to date on the changes to portfolio lending.

5. Don’t get caught out

Don’t rely on simply buying off-plan, unbuilt units. While the strategy is a simple one, there are potential risks, especially if the area does not have good transport links and desirable amenities.

Take the advice of your agent who will be able to offer their opinion on buy to let property investments, including how to furnish the property to achieve the maximum rent

6. Know your audience

Serious investors do their research. The Office for National Statistics is a great way to find patterns in population growth and high densities of ‘working-age’ people who will likely be looking for rental opportunities. Cross reference this data with areas of higher than average rents and strong demand and you have the property location sweet spot.

The type of property is also important. Landlords should think about what type of tenants they would like and specialize in the type of properties that suit that group.

Read our guide to property management.

7. Referencing is crucial

There are too many horror stories about nightmare tenants for a serious landlord to scrimp on tenant checks and inventories. Lettings agencies will find and screen tenants on your behalf carrying out reference follow ups and credit checks so it is well worth the fee for this service. Thorough inventories and legally accurate paperwork is also advisable, and again, a reputable lettings agency can help with both of these too.

8. Don’t rely on rent alone

Both the rent and the property’s value can be enhanced by making it highly desirable to tenants and ultimately buyers. On trend refurbishments and conversions that maximise space and light could add huge value. A word of caution though, it is easy to get carried away so limit the cost of the enhancements to 10% of the asking price to avoid losses.

Read our guide to giving your property the wow factor tenants are looking for.

9. Be realistic

Work out the expected rental yield and costs and then work out what you can reasonably ask in rent. Understand that there are no guarantees either, even desirable property in popular areas experiences void periods. And things can break unexpectedly leaving a landlord with repair costs and, in extreme cases while tenants have to move out during the repair, with a loss of rent.

Property can be your biggest liability and successful landlords should have already ensured that it not only services its own debt but brings in a high enough level of profit to make an income.

10. Be a good landlord

By providing a good service to your tenants, you are insuring your investment. They will be happy, likely to stay long-term providing a reliable income and reducing running costs of finding new tenants and doing all the subsequent paperwork such as inventories, tenancy agreements, credit and reference checks etc. Moreover it will be fuss free, which is how a property investment should be.

If you would like support or advice with any element we have covered then please get in touch with your nearest lettings branch who will be happy to advise further or download our Lettings FAQ.