London-based property company, Experience Invest, rounds up the most important questions people need to ask when investing in rental properties in the UK.
The rental market is one of the most lucrative ways to invest in the property sector. With over 4.5 million tenants in the UK at the moment, and more and more people choosing to live as private tenants rather than homeowners, there's a captive audience for rental stock.
But before choosing to invest in this type of market, it's important to understand yourself, what you want from your investment, and how you plan to make it happen.
Here, Experience Invest takes a look at a few of the most important questions to ask yourself before you invest in rental homes for the property market.
Who are you targeting?
Probably the most important question for any would-be landlord to ask; who will you be looking at as your ideal tenant? It's easy to think that if you buy the right home and make it available for rent, that you will easily find a tenant, especially in a rental market like that we're enjoying at the moment.
However, it's not always that simple, and if you don't know who your target audience is before you buy, then you might immediately be on the back foot. Whether you are looking towards students, young professionals, families, or the emerging older tenant sector, knowing who you want to rent your property will shape your whole investment, from what you buy, to where you purchase, all the way to how you market it to prospective tenants.
Remember, each demographic is very different in its wants and desires, and making sure you have set your goals with one specific group in mind is the ideal way to set yourself up for success.
Where should you invest?
After you know who you want to target as tenants, you need to know where you want to invest in property. This is somewhere that many landlords will succumb to the pitfalls and start chasing the highest rental income.
For example, with rental prices in London now averaging in excess of £1,000 per calendar month, it's easy to think that this must be the most profitable place to put your money. But the savvy investor will see that the high investment prices in London, with average final sale values in excess of half a million pounds, reduces your rental return.
So where should you buy?
For new investors, it can be a good idea to look towards emerging markets.
Places where regeneration has been a focus, and where businesses are starting to migrate to, such as Manchester, Liverpool and Leeds, can be a fantastic option. Not only do you have relatively low rental prices, but you also have a rising captive audience and the potential for rental prices to climb as the areas become more popular.
Are you in it for the long term?
One question that many newcomers to rental market investment might not ask themselves is what they expect to achieve from their investment. Everyone knows that rental property is big business at the moment, but it's important to know that quick returns, if that's what you're looking for, are not the core of the rental market.
The majority of landlords in the rental market will spend big on their rental stock and see the returns as a good way to get themselves a solid income for a number of years. Whether it's for your retirement, or just to top up your monthly income, it's important to note that when you're investing in rental homes, the income tends to come over a number of years rather than all at once. If you come in with that in mind, and have the right attitude for expansion and continued returns, it can be a very lucrative way to invest for the future.
Is managed property the way forward?
A reason that many people may have been turned against the idea of investing in rental property in the past is the simple fact that it can be time consuming. As a landlord, the perception is that investors need to always be available, and always contactable by their tenants for when problems crop up.
However, the modern market is a little different, and people investing in property in the rental market these days can often actually find that it's a stress free way to buy thanks to the emergence of managed rental properties. Purpose built rental properties are now more commonplace than ever before, and these tend to have maintenance, letting, repairs and other important jobs covered by the owners of the building, and not the landlords themselves.
If you're the sort of person who thinks they might be busy and struggle with keeping up with tenant demands, it can therefore be a good idea to consider whether you want to buy managed properties to give yourself a more hands-off return on your investment.
Are you building a portfolio?
The majority of landlords in the UK at the moment are still those who have only one rental property to their name, with more than 90 per cent of buy-to-let owners having just one single unit. However, for those who have a real taste for property ownership, there can be real potential in investing in a more diverse portfolio.
One of the real benefits of a diverse portfolio that has different types of properties for different demographics is that you manage to capture the highs of each type of market when they come, as well as protecting yourself against the risks of falls in each market as well, which can mean you have a much better chance of long-term success.