More people than ever before are choosing to invest in a buy-to-let property to fund their retirement, or as a form of investment.
If you’re considering buying a property to rent it out, here are Portico London Estate Agent’s top tips on getting the best return on your investment.
Making money from buy-to-let
There are two ways that landlords make money from a rental investment, through capital growth and rental yield.
Capital growth is the amount that the property increases in value, whereas rental yield is a percentage that shows you how much you will earn from your rental property each year.
To find out your rental yield, divide the total annual rental income from rent by the price you paid for the property, then multiply it by 100. For example, if you buy a property for £400,000 and rent it for £1,800 a month, the total yearly rent is £21,600, and the sum to work out your rental yield is: (£21,600 / £400,000) x 100 = 5.4%
If you have a mortgage, make sure you choose an area with good yields so you don’t have to top up your rental payments to cover your mortgage each month. If you are targeting capital growth, consider purchasing in an area with high levels of overseas purchasers – typically prime London, Chelsea and Westminster.
High yield & capital gain
The key to a really successful long-term buy-to-let investment however is finding strong rental yields and the potential for capital growth.
LendInvest’s latest Buy-to-Let Index has revealed that you’ll stand to profit most from buy-to-let in London than anywhere else in the UK. Their data shows that east London offers the highest yielding postcodes in the UK, with 7.4%, followed by Manchester with 6.8%, and south east London with 6.7%. London also offers the highest capital gains, with house prices in south west London increasing by 13.8% a year from 2010 – 2016.
If you want to achieve both a healthy monthly rental income and see your house appreciate in value, London is therefore likely to be your best bet.
Transport links & local amenities
Though chasing a high yield is important, you must also ensure that you buy in a popular area where tenants want to live. If you buy in an area with little demand, you’re likely to experience large void periods which will hamper your return on investment much more than a slightly lower rental yield.
Good transport links and local amenities are what matter most to the vast majority of tenants, so invest in up-and-coming areas that are undergoing infrastructure investment, or buy a buy-to-let that’s located near a Tube or rail station.
How many bedrooms?
Once you’ve settled on an area that offers a good yield, potential for capital growth, and strong tenant demand, you need to decide what type of property to buy.
72% of the applicants we deal with at Portico are either employed couples or employed sharers and they are nearly always looking for 1 and 2 bedroom properties – so we advise buying a property of this size.
If you’re considering purchasing a larger property, you need to make sure it is located in an area popular with students or families.
Decorating your rental property
When you have purchased your rental property, ask a lettings manager to pop round and advise you on the best way to spend your money to achieve the rent you want.
We suggest you keep the décor neutral and modern, to appeal to the maximum number of tenants. If you’re looking for a reliable handyman or decorator to lend a hand, you can get an instant handyman quote here.
When to bring your property to market
As a rule of thumb, rental prices are around 11% higher in summer than in winter, so you’d boost your income considerably just by timing when to bring your property to market. We advise marketing your property in August with a view to getting it let in September.
Portico London Estate Agents have branches in Acton, Battersea, Bloomsbury, Camden, Clapham, Dulwich, Fulham, Hammersmith, Highbury, Islington, West Hampstead, Bethnal Green, Leyton, Walthamstow, Ilford, Forest Gate, Woodford and Chigwell.
Find out how much your property is worth in 60 seconds, with a free instant valuation!