Buy-to-let landlords have seen returns of close to 1,400% over the past 18 years, a new study by Wriglesworth and Landbay shows. Now the market has come of age, it's important to think more seriously when you move to build your portfolio.
Choosing an area
It's not unusual see property tips along the lines of 'follow Waitrose to spot an up-and-coming area' or 'stick to an area you know well', but an element of statistical analysis is also important.
House price growth across the UK has been extremely inconsistent over the past year, with hotspots in London (15% growth) and Manchester (21%), while cities like Glasgow and Coventry experienced growth of just 2%. Occupancy rates can also help give a good guide to where the rental market is strong and reliable.
If you're just starting to build a portfolio, you may be tempted to try a fixer-upper, but it's not always your best option. According to research from HSBC, although a perfect property costs on average £58,500 (43%) more than one requiring renovation, the average yield is 1% higher.
This means they not only represent less work, but more value in the long term. Unless you have proven experience or trusted contacts in renovation, it may be wise to look for a property that's ready to go.
Property prices are, by and large, back to pre-recession highs and in some cases beyond them. Consequently, mortgage rates are more important than ever.
Fortunately, they're also at historic lows. On average, two-year fixed rate buy-to-let deals stand at 3.45%, and five-year deals at 4.25%. Although comparing arrangement fees is recommended too, as these can rise above £2,000 and significantly affect the cost of your mortgage.
Consider long-term risks
House prices may be rising, but volatility (short-term change) remains high. That's why it's wise to think long-term when it comes to building a commercial property portfolio.
We advise looking closely at your tax situation, and ensuring that you write off all appropriate costs. It's also wise to consider your insurance options, including damage add-ons and how well you're covered in the event of a tenant failing to pay their rent.
If you have tenants with rent arrears, you can call a us today for more advice on reclaiming your debts.