Top 5 Factors to consider when buying a rental property
Buying a rental property must be a very well-thought-out decision; after all, rental property is a long term investment. From finding a cash flow positive property to understanding your target market, from finding the right house to choosing the right neighbourhood, there is so much you need to keep in mind. According to Knightsbridge estate agents, these are the top 5 factors that you need to consider when buying rental property in the UK.
1 Location is everything
The location of the rental property is the most important factor. For one, you want to invest in a rental property in an up and coming area so that the value of your property grows over time. A city or neighbourhood that is upcoming, one that has a growing population or one that is set for new developments is always a good investment opportunity. Also, you want to invest in a rental property that is close to supermarkets, restaurants and cafes, public transaction links, school districts and so on. Of course, factors such as low crime rates and local property taxes should also impact your decision. At the end of the day, you could fall in love with a gorgeous vacation home in the outskirts of the city, but the chances of finding regular tenants might not be too high. If you don’t have tenants, your rental property will not make money – which is a waste of an investment! If you are thinking about investing in a rental property in the UK, you can start looking at properties for sale in Marylebone.
2 The 1 per cent rule
The one per cent rule is a simple rule of thumb that most Marylebone letting agents recommend every property investor should follow. The one per cent rule of thumb for investing in rental property is pretty basic – a rental property should make no less than 1 per cent of the total price every month. Keep in mind, the total price not only includes the purchase price but also additional costs such as renovation costs. In case the value of the property is very high, it is not always possible to follow the one per cent rule, especially if the property is valued at millions of pounds. In that case, be sure that the monthly mortgage is lower than the monthly rental so that you do not end up paying from your own pocket.
3 Think about the target market
Let’s say you are looking to buy a rental property in a family-friendly neighbourhood that is relatively close to a school district. The chances are that a high percentage of your tenants are going to be families. In that case, you will probably want to invest in a three or four-bedroom house as opposed to a one-bedroom apartment. On the other hand, if you want to buy a rental property in the city centre, you will probably attract young employees and single professionals who might prefer to live in a one or two-bedroom apartment as opposed to a four-bedroom home. You need to base your investment decision on your target audience.
4 Cash flow positivity
Is this investment property going to be cash-flow positive? Many investors decide to invest in flipper uppers. However, after paying the purchase price and spending huge sums of money on fixing the property, will the property be cash flow positive? On the other hand, some investors choose to invest in developed neighbourhoods as they feel it is a good investment. But, will the value of the property continue to appreciate over time? Also, is the monthly rental enough to ensure that the property stays cash flow positive? At the end of the day, a rental property needs to make money, so unless it is cash flow positive it is not a wise investment.
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5 Focus on the neighbourhood
When it comes to rental properties, the neighbourhood plays a vital role. If the neighbourhood is close to a school district, you will tend to attract many families as your tenants. These tend to be long-term tenants. If the neighbourhood is close to a university, you will probably have students as your tenants. In that case, be prepared for summer vacancies and high turnover rates. Also, the development in the neighbourhood and the overall reputation of the neighbourhood will impact the valuation of your property in the long run. If you end up buying rental property in a fancy neighbourhood, one that is close to various amenities and modes of public transport, you can even charge a premium as the monthly rent.