Should I buy another rental property?
It's a dilemma faced by accidental landlords, portfolio builders and those looking for investment opportunities. Once the first property is occupied and producing income should I buy another? It's not an easy question to answer. Not least because every landlord's circumstances are different.
But if you are weighing up your options about buying another rental property here are the top five factors you should consider.
Find the right mortgage
Sorry for stating the obvious. But shop around. Certainly, don't restrict yourself to your current lender.
An independent broker may be the best source of advice. There are so many buy-to-let mortgage products around a broker should be able to find the best deals for your individual circumstances.
But stil, do your own research. It is always best to have some idea of what is available before speaking to a broker or mortgage advisor.
It is also a good idea to look beyond the finance of a mortgage. Look at the fine print and see if there are any clauses you need to be aware of. Some lenders may insist on certain levels of insurance or may even exclude using the mortgage for buying a property to rent to DSS tenants.
Finding the ideal location is as important as choosing the right property. There are buy to let opportunities right across the country. But where is the ideal location?
It isn't necessarily where you already have a property. When assessing any area you need to consider a few things:
- Do people want / need to live there?
- What are the transport links like?
- Are there any local schools?
They are basic questions. But you do need to assess the local market before asking them.
- What are the property prices?
- Is the private rental sector strong?
- Will you be able to charge a high enough rent to cover your expenses?
A 'yes' to all the above would indicate an area which may be worth investing in if you can find the right property.
Think about your tenant
This goes hand-in-hand with location. There is little point in buying another rental property if no one wants to live there. But, by the same token, there is equally little point in buying a property which is unsuitable for people who are looking to move into the area.
For example, if the area is a hot bed of tech start-up companies and marketing agencies properties which appeal to young professionals will be in demand. If the area has no schools and few shops it is unlikely to appeal to families. Similarly, a high-end rental is unlikely to find a flood of prospective tenants if the area has high unemployment or most private tenants are on benefits.
Think about the type of tenant you wish to attract. Put yourself in their place. Is the rent you need to achieve likely to be affordable to the tenants you wish to attract? And, more importantly, will your ideal tenant be attracted to a property in the area?
Buying another property delivers an immediate quandary. You have just doubled your workload. You now have at least two properties to look after, two sets of tenants and double the paperwork. If it's your third or fourth property your workload has just increased exponentially. This alone is enough to put some landlord's off expanding their portfolio.
But don't let the time and work involved be the deciding factor in deciding whether to buy another property. If the figures and location are right you can always instruct a letting agent to manage the property for you. This makes absolute sense if you have multiple properties. Especially if they are in different locations.
An agent can take care of everything. From finding a tenant to collecting the rent to managing repairs and maintenance. They will also take care of the legal compliances such as EPC and Gas Safety certificates.
Work out the finances
This could be an article on its own. But naturally, enough finances are the most important factor in a decision to buy a property.
- Is the mortgage affordable?
- Is the rent you need to achieve realistic given the property and the area?
- What is the likely maintenance costs?
- What is the likely yield on the property?
- What will be your annual return on investment?
- How much will running costs, tax, and other expenses such as letting agent fees eat into your return?
Many landlords factor capital gains into their calculations but oft-repeated advice says to invest for income rather than short-term gains. The rent you can achieve and the likelihood of full occupancy may be your most important yardsticks when calculating the finances of buying another rental property.
If you are considering buying another rental property or already own a portfolio MakeurMove provide a full management service from finding tenants to managing maintenance. Learn more here.