UK Landlord Forum / Life

Good Morning Folks

I am in the process of purchasing my first buy to let property.

As you know, there are certain advantages of purchasing a BTL within a 5 mile radius of where you live - i.e. easy to get to, and you may already know the area etc.

Does that mean purchasing a BTL in, for example, another town/city, comes with its own set of disadvantages and that I should concentrate on purchasing my first BTL close to where I live until I get further experience of the BTL business?

Thanks in advance for your responses.

Hello. Just saw your post and thought of an article in the Telegraph which may be helpful to you generally about Buy to let. Sorry I cant answer your question directly but I hope this article will inform you about the buy to let hot spots if you decide to buy further away!

Thanks J-Nevil

I assume you plan upon managing the property yourself. If so, then it would be more convenient for the property to be nearby for convenience in making ready the property for the rental market and then for checking in the tenants. If you have made your purchase diligently, brought the property to a good rental condition and vetted your tenants, then you should have little cause to visit the property other than on agreed inspection visits during the tenancy.

If you plan on using a fully managed agency service then, subject to you using an agency of good reputation, then your proximity to the property is less of an issue.

Location is paramount to your target rental market, this may be schools, easy access to transport links etc etc. Regardless of where you buy, even if in very close proximity to you, I would recommend you spend time identifying your target rental market first and then make your choice on the location that best serves your market.

Good luck in your business.  Yes it is a business, so best to adopt a professional mind-set from the very beginning, from operation to finance and everything in-between.

Thanks cyberlord

Make sure you know what type of investment you're looking for. Income, or capital appreciation? A mixture of both?

Too many landlords, I think, reckon buy to let is a get rich quick scheme. It isn't. In fact, you might find that it takes you a long while to make any serious money at all.

Making income is about yields. Estate agents will quote a gross yield to you, but this is an often unrepresentatively large figure.

The gross yield is the property value over the annual rental payments. This doesn't take into account what you've invested so far and monthly costs, though. A simple calculation to find out the income you can realistically expect to make from a property straight away:

Take the money you'll invest. This is the deposit and any purchase fees - you should have a good idea of your cash outlay.

Then take the possible rental income. If you haven't had a proper survey done, look at comparable local properties.

Next, subtract your costs from this. Likely costs are:

Your mortgage payments (you can find a calculator online. The larger your deposit, the better the interest rates you'll get and the less capital you'll have to repay)
Repairs and refurbishments (budget for about 10% of annual rent)
Voids (again, about 10%)
Agency fees (usually about 10-15%)

Divide the final figure by the total amount invested. The formula is:

(rent - costs) / cash invested

This will give you a 'true rate of return'. It's likely to be pretty small.

The thing is about TRRs, if you have invested cleverly, they keep growing - through a mixture of capital appreciation, rent increases and property improvements over the years, even though the amount you invest climbs with mortgage payments, you should get more for your buck. The bad investments are the ones which cost a bundle to maintain, don't accrue any value and can't attract decent rent. If you invest well, it will still take a couple of years for you to start making a decent income, but it can be done.

So, are property prices fairly unstable in your target area? Are they falling? Are there any big developments round the corner which will ease demand for accommodation?

If you answer 'yes' to any of the above, you should invest for income. Put as much cash up-front as possible, make sure the property is in good nick and keep on top of your costs. Self-management is the best bet for this approach, so you want to be in close proximity.

If you are investing for capital return, big cash outlay and proximity aren't as important as the ability to service the debt, and the ability of the property to accrue and hold value. Property values are never set in stone, but the long-term trend is upwards (we're talking over a decade or more). Here, you want to buy smart and as cheaply as possible, in an area where property prices are stable, like the South East. Buying a property at auction in need of light refurb is an option if you have the capacity to get it up to scratch.

For the second option, the income just needs to pay for running the property until you have paid off the debt. You're really keeping it 'ticking over', trying not to lose money until it can pay for itself in excess of the amount you've invested. A management firm is more viable for this option, and you don't need to be as close as a result.

So, which of these types of investment do you want to make, and what state is the property market in your area? Answer these questions, and you should know whether to invest local or cast the net further

(Sorry for the ramble - I hope it all made sense. You can visit the landlord support centre on my site for more info - I recommend bookmarking it for the future )

Good luck!

Oh, another tip: I recommend setting up Google email alerts for things like 'buy to let'. You get little tidbits like this, which are probably very useful for your current situation: Independent - Which are the best cities for investing in buy to let?

Thanks very much indeed Brian, for all your advice.

Hi Folks

I have bought the property that I mentioned earlier on this thread. 

I am now considering buying a 2nd BTL.  The above BTL I bought for cash.  Can I remortgage that one in order to buy a 2nd BTL?

The 2nd BTL is also a new build.  In terms of whether or not it is rentable, I have asked a few letting agents and they have all given the nod, but non gave any specific figures of how much I could rent it out for.

Also, in terms of researching the area, do  I just inquire whether or not there are good schools/employers/transport links.  Is there anything else I should consider?

Thanks in advance for your responses.

Far too late to reply but yes, you can 'remortgage' the unencumbered property.  I put it in quote marks as it's confusing as you didn't have a mortgage on it in the first place.  It is an unencumbered property.  A number of lenders may only allow this after you've owned the property for a minimum length of time though.