- 1 Good and bad Buy to Let and HMO property purchase investments.
The Buy to Let and HMO property purchase is the first issue facing anybody thinking of investing in property. One issue when finding property, is between buying either vacant property for sale or maybe tenanted rental properties for sale. But there are other basic issues.
Should you buy the cheapest property ? Should you buy the best property ?
How do you make the biggest profit, or how do you make the most reliable profit ?
Good and bad Buy to Let and HMO property purchase investments.
If you are investing in property, then its location and condition are at least as important as its price. Any property purchase should be viewed and valued, and should not be just bought blind as you might be tempted to do at an auction. Any property investment should ideally provide a profitable rent yield and/or an acceptable capital gain which may be longer term.
Regarding rent, it may well be that for the price of one prime location property the rent yield may be lower than for two poorer location properties that you can buy for the same money. But its lower rent yield may well go with a higher capital gain in the longer term. And property in very poor locations may be rentable only to welfare or DSS tenants, some of whom may be more unreliable tenants. In large cities demand may be strongest in apartments for rent, but in other locations may be strongest in houses for rent.
The ideal Buy to Let and HMO property purchase is likely to be in a cheap-but-improving location. If you do not have personal knowledge of the locations that you are thinking of buying in, then you can try asking around or do some property price movement research yourself. An improving area may be a Regeneration Area, a commercial development area or areas around improving schools. Of course some people like beach-front property, and some like town-centre property or near-college property. But do try to avoid locations that nobody wants.
Buy To Let and HMO property purchase criteria does not need to be local, since there are Letting Agents in all regions who can manage it for you. As an investment you should invest in the best area possible to give you the best returns. Of course using letting agents does involve annual costs which can be substantial. And if you buy leasehold instead of freehold, as often if eg buying a flat, then the purchase price may be a bit lower but you will face additional annual ‘managing agent’ costs that can also be substantial.
Remember that your Buy to Let and HMO property purchase is sometimes not dependant on your income and/or if you have a large mortgage on your own home. Many Buy-to-let lenders lend on the expected rental income of a property rather than on your income. Each buy will need a deposit, but you can buy as many properties as you can afford. Some lenders will limit the number of mortgages that you can have with them, but there are plenty of lenders. And if you pay more tax than your partner, then you can put the property in your partners name to save tax.
Rental income projections
It is unwise to purchase a property that is so undesirable and badly located that it cannot be easily rented. And if you are buying property to rent it, then you need a reasonable estimate of how much rent it can get. You can get rental income projections from a property sales agency or from a developer – but they are nearly always overstated. See if you can get estimates of local rents yourself, as from eg newspaper homes for rent ads. You will need one years rent to be between 5% and 15% of your property price (including any fixing-up cost), if buying is to make any sense.
Capital gains projections.
Investment property should generally have the potential to be sold later for a profit. So again, it is wise to buy a property that will be in some demand. Do not buy just because you like the property and someone is pushing you to buy. Get some real view as to what people like the location and if it is improving in terms of property prices.
Investing in rental property that is already tenanted.
A property investor might reasonably decide to buy a property that is already let to one or more tenants – these properties are often cheaper and they have an immediate guaranteed rental income. Again you will need one years rent to be between 5% and 15% of your property price (including any fixing-up cost), if buying is to make any sense. But the fact that you start tenanted does not mean that you will stay tenanted if they move out. So do still make sure that the property location is attractive to some reasonable set of people !
Buy to Let and HMO property purchase process
So now you have decided to buy a particular investment property, and maybe an agency is involved or maybe an auction or maybe buying privately from the seller ?And now you would like to know more about how best to actually go about the buying ?The brief rise and fall of the Home Information Packl: From 1 June 2007 in England and Wales a HIP or Home Information Pack was required to be available to anyone requesting it, for any single non-tenanted home on public sale. The content of the HIP was limited and while including local searches may not have included a survey acceptable to all lenders. If you were buying a tenanted home or a portfolio of vacant homes then there may have been no HIP available, so local searches would have had to have been arranged by your solicitor or conveyancer. HIPs were then suspended in May 2010 and formally abolished shortly thereafter.And maybe you will need a mortgage, which in this case will be an investment mortgage or commercial Buy To Let mortgage, and now you would like to know more about that ?Well these issues are well dealt with on this website, so just return to the top of this page and see the rest of this great site !
And to get a real grip on the money issues, we really recommend our buy to let profit calculator !
(Note that to use this needs access to a computer with Microsoft Office Excel.)
PS. Buying a really cheap property can prove expensive.
Firstly, it may well be in an uninhabitable or even dangerous condition that will need expensive work to put right.
Secondly, it may have expensive standing charges or attached debts.
Things are cheap for some reason, and what looks a bargain buy may not be such a bargain. So you should think carefully and check al the facts before you buy any property.