Buy-To-Let Is A Hands-on Investment, Says Property Journalist Sharon Dale

Who speaks from experience. Here are her tips on how to minimise stress and maximise income

When it comes to property investment, it’s like Sinatra said: “Mistakes, I’ve made a few.”
I’ve bought in the wrong area, lost my heart to a good-looking house that turned out to be a money pit and I have fallen for sob stories from tenants who were bad people.

So, I know a thing or two about the stresses and strains that buy-to-let can bring. It’s not an easy option and the returns have not been huge but I wouldn’t put my money anywhere else. The stock market is too volatile for my liking and interest rates on savings are too low. I also like the fact I can see my investment.

If you’re thinking of buying to let, here are some tips:

Consider costs.
The government seems to be doing its best to dampen the buy-to-let market. Investors must now pay an extra three per cent stamp duty on their property purchases. Tax relief on mortgage interest has also been cut and then there is capital gains to consider when you sell an investment property. It all adds up.

Think long term.
The old saying that property doubles in value every seven years is not true. I’ve had my buy-to-let for ten years and for five of them, during the recession, the value remained static. However, the rent pays the mortgage and so we did make small gains. That’s why I would never get an interest-only mortgage, as you are entirely reliant on capital growth.

Work out the rental yield, which is the annual rent as a percentage of the purchase price. You should be looking for between five and eight per cent.  For example, a property worth £200,000 that generates £10,000 worth of rent has a five per cent yield.

Where to buy
I would always buy in an area you know or have carefully researched and visited. The last property boom claimed many victims who bought cheap homes, sight unseen, through rogue investment companies. Look for good or up-and-coming areas with good schools and transport links. You can generate high rental yields by buying low-priced property in rundown areas but your chances of having a bad tenant are also increased and capital growth will be poor.

What to buy: My property is an old cottage.
It looks cute and has some lovely original features and that’s why I bought it. However, the plumbing turned out to be an absolute nightmare. The old lead piping was buried in the walls and we had burst after burst, which cost us a fortune. It also needed a new roof.  Old properties can be costly unless they have been completely modernised and the work has been well done.

If you buy a “do’er upper” you enter the arena of property renovation, which brings its own issues. It’s why more investors are buying newly-built homes. This is certainly something I would consider. Those with a big budget could also look at investing in a larger property and creating a shared house for young professionals with all bills included. The yields on this type of investment is double that of the average buy-to-let.

Maintenance and voids.
You must factor these into your ongoing costs and create a slush fund to pay for annual gas safety checks, insurance and repairs. There will also be voids between tenants when you will need to pay the mortgage, council tax and utility bills.

If you manage your own property, be prepared to find and vet tenants, which is not easy as most now look on Rightmove and only estate and letting agents have access to this. You’ll also have calls at all hours about everything from leaks to broken boilers. To avoid this, you can pay a set-up fee and 10-12 per cent of the rent to a letting agent. Make sure the agent is reputable and ARLA Safe Agent registered.
Exit strategy.
When you buy bricks and mortar your money is tied up. Even in a fast-moving market, sales take time to go through and they can fall through. If you are in a slow market, finding a buyer can take a few months.

Publish date: 16/10/2017