#TuesdayTips - Investing in buy-to-let properties

Posted 13 September 2016 by Helen Christie

Experience Invest have put together some top tips for finding the best possible return on investment from buying property to let…

The property investment market in the UK is a multibillion pound industry, with people from all walks of life putting their money into a market that has boomed in recent years thanks the growth of generation rent and the rise in student numbers, among other factors. 

With more than four million rental homes nationwide at present (and this still not enough to meet the levels of demand from tenants looking for somewhere new to live), it's quite clear to see why so many people are now looking towards this market as a means to invest a little (or a lot) for the future. 

But property investment can be difficult, for newcomers in particular, and knowing some of the tricks of the trade can be vital to finding success, so Experience Invest has put together a few top tips for buy-to-let investment success in 2016…

Spread your bets

Knowing what works with rental investment is a key part of the investment process. For example, at the moment, more than £16bn invested in student property in the last three years alone would suggest that the market is working well and drawing in investors time and again, especially given that no year ever broke £3bn before 2013. But remember, although one sector may see a spike like this, it's important not to put all your eggs in one property basket. Spreading your bets when building a property portfolio can make for a fantastic strategy. 

If, for example, you are buying student properties, below market value rental flats and putting money into the commercial market, it stands to reason that not only are you more likely to benefit from rises that occur in any of these, but you also slightly mitigate your risk. If one of the sectors you invest in collapses, sure you'll lose some money, but your hit won't be nearly as severe as you would experience with a narrower approach.

Think local

For new investors in particular, it's easy to look at London as the be all and end all of investment. After all, it has traditionally been the biggest market for business, and has possessed that gravitational pull that brings graduates and skilled workers towards it in ways that other cities never seemed able to. But that's all changed, and for the past few years, it's the regions that have seen some of the best growth in returns thanks to big changes. 

Regeneration, for example, in Leeds and Liverpool, and a large chunk of investment in Manchester has meant that more and more businesses and people have been heading north in recent times, creating a demand for property in booming business areas. When this is combined with the lower entry prices than London, we can see that investors in the north have a chance to get on the market for lower and start building their portfolio, while also welcoming potentially better returns than they could expect in London.

Target yields, not prices

For newcomers to the rental market, it's easy to look towards the very highest rental prices available and see these as the most preferable. But remember, just because rent in one area is high, it doesn't mean that this brings about the best returns. For example, while the average rental price in London is creeping ever closer to £1,600 per month, the fact that house price average is well over half a million means your yield is often not all that strong. 

By way of contrast, investment in regional towns and cities will allow you to buy lower, and even though rental income won't be as high, the fact that the initial outlay was lower means you'll be seeing the best yields and bringing in strong returns. 

Know your target market

It goes without saying that in any market, before you invest in a business of any kind, you need to know who you are targeting, and what they want. And property is no different. In the current climate of renting being one of the largest markets around, there are a number of key demographics that remain prominent, and confusingly, all have different needs and wants. Understanding these is key to finding rental investment success and ensuring you buy correctly. 

For example, if you are investing in the student market, it pays to look near campus, or good nightlife, while those who are putting their money into properties for young professionals will want to look for modern builds near transport hubs. Knowing what your tenants will want is absolutely necessary ingredient in the recipe for success. 

Buy off-plan

For years, buying property off-plan was seen as something of a risky investment, largely because projects could be stopped or cancelled when financial hardship struck. But off-plan investment has a number of exciting plus points that make it a fantastic investment strategy, particularly for the rental market. 

Off-plan properties will often see developers offering deals to investors, which means you can mitigate against some risks with guaranteed returns over the first few years. And in addition to this, you often get the chance to invest at prices far below market value. When combining this with a clever understanding of who wants what in their rental property, you have the opportunity to really maximise yields and bring yourself a strong return on investment.

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