Top 5 tips for buy to let investors

Landlord Expert
By Landlord Expert March 16, 2013 08:54

Robbie Fowler, the former Liverpool and England footballer, set up a "property academy" for would-be investors after becoming one of the biggest private landlords in the North West. He is estimated to be worth £28m.

But you don't necessarily need advice from a footballer to boost returns from the property market. The tips below should be a good starting point for those looking to maximise property returns.

1. Identify future hot spots

Estate agents and property developers are always keen to identify the next "hot spot" that will buck market trends and report double-digit growth. In London, for example, Knight Frank has identified Nine Elms in Battersea, Earls Court and Paddington as ripe for big price rises, thanks to development plans. But being in inner London, properties in these areas will already command a large price tag. There may be more attractive opportunities outside the capital.

Keep an eye on transport and regeneration plans, as well as any employment initiatives, as these can boost house prices.

2. Stick to the basics

Whether you are looking for income from a rental property or a place to live offering the hope of capital gains, don't forget the basics, such as location, transport links and proximity to good schools, shops and so on. Research from estate agents, Huntley Hooper, shows that over time period properties tend to hold their value better than newbuilds. It also found that in recent years properties in towns have held their value better than those in villages. Regardless of where you buy, it is typically prime property that holds its value better in market downturns.

3. Don't over-borrow

There is an assumption that you can't go wrong investing in bricks and mortar. But given that most people borrow to invest in this asset, losses can be magnified in market downturns. Banks now have far stricter lending guidelines, so it is harder to borrow more than you can afford to repay – but those in the buy-to-let market can still run into difficulties if they cannot replace tenants. Would the mortgage be affordable if you lost your job, had to work reduced hours or suffered long-term illness?

4. Factor in the downside

Being a buy-to-let landlord is not a licence to print money. At the moment rental yields are strong, thanks to demand outstripping supply in many urban areas. However, this situation could reverse if more people buy property to let out and credit conditions relax, making it easier for first-time buyers to get mortgages.

A further downturn in prices could hit landlords hard: not only will they see the value of their investment fall, but they could struggle to find tenants at current yields as housing becomes more affordable for first-time buyers.

There are also concerns that a new initiative to encourage people to improve insulation in their homes will create a costly headache for those with older properties. If tenants demand these improvements, landlords could foot the bill without seeing the reduction in bills to offset costs.

5. Look at property investment funds

You don't need to own bricks and mortar outright to invest in property. There are a number of property funds, although the majority invest in commercial (offices and shops) rather than residential property. However, a number now also invest in residential homes.

The TM Hearthstone UK Residential Property fund invests in buy-to-let properties and aims to be a lower-cost way of tapping into price gains. Another option is Castle Trust's HouSA – which is basically a structured product in which gains are linked to the Halifax house price index rather than the FTSE 100. Both can be bought via an Isa, cutting income and capital gains tax.

Landlord Expert
By Landlord Expert March 16, 2013 08:54

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