What to look for when buying an apartment to let [UPDATED]
For new buy-to-let investors, or for landlords who have never invested in an apartment before, you may require a little guidance before you start your search for an apartment. When buying an apartment to let out, there are specific factors to take into consideration, factors which may not be relevant if you were looking for a house.
Buying-to-let remains a popular option for boosting your income and bringing increased security in your retirement.
While changes in stamp duty and income tax mean buying-to-let might not be quite as lucrative as it once was, interest rates are still low and the high cost of home ownership means demand for rentals is higher than ever.
If you’re new to buy-to-let, a flat or apartment is a good way to get started. Choosing your first buy-to-let property may feel a bit daunting, so here are some of the things you’ll need to consider:
Location, location, location
As a new buy-to-let landlord, your first decision will probably be location of your property investment. This is one of your most important considerations. Begin by trying to envisage the sort of tenant you’ll be aiming to attract, then look for somewhere that’s going to appeal to them.
If, for example, you’re looking at young professionals, you’ll probably want a lively area with good transport links and plenty amenities. You might want to consider whether it’s close to a local employer – a hospital or university, for example. For smaller apartments, your target market probably isn’t families, where schools, parks and nurseries are a big priority.
Do some digging so you have all the facts at your fingertips – find out about crime rates, and average rents in the area. It’s often easiest to concentrate on the area where you live or know well – you’ll already have the advantage of insider knowledge about the best streets. However, if you already own property nearby you might want to try somewhere different – so all your investments aren’t dependent on house prices in one location.
New-build or period?
Once you’ve narrowed down your location, you’ll need to think about the type of property you’ll go for.
New properties have the advantage of being relatively easy to maintain – great if you don’t want to be involved in restoration or too many repairs. They are also energy-efficient, so good for anyone letting a property with bills included.
Older properties, with character and interesting features, can command a higher price, however, and often hold their value better than new-builds.
If you’re happy to renovate the property, you might get a bargain with a flat in need of some care and attention.
One, two or more?
When deciding on a property, look carefully at the cost per square metre. With so many young couples priced out of buying, one-bedroom flats in the right areas tend to bring the best return for their size.
Be guided by your budget but remember that a one-bed or two-bed apartment will be easier to let, and easier to sell on, than a studio – you might find it easier to get a mortgage too.
Ground floors … and other storeys
Ground floor apartments in communal blocks can offer good value for money but may be more difficult to let. Reasons include security concerns and noise; if the flat is close to an exterior door or busy road. Privacy and natural light might be issues too.
Ground floors sometimes come with outdoor space, which might be a selling point – or another maintenance cost for you to factor in.
If you’re looking at upper storeys check the lift/stairs situation – a big hike up several floors might be a seen as a negative.
Check the condition of the communal areas – smelly, dingy or dirty and they could put potential tenants off. Likewise, if they’re clogged up with bikes, pushchairs and other detritus, causing an eyesore, not to mention a fire hazard. Check on who is responsible for upkeep of communal areas and any costs involved.
Factor in extras
Remember that apartment blocks with communal areas come with annual maintenance and service charges, which can go up at any time. Check too whether the flat is freehold or leasehold. If leasehold, find out the length of the lease, the ground rent and about any other charges, which could affect the resale value of the property. There may be other costs too, for upkeep of shared drains, for example.
Getting the right mortgage deal is crucial to making a decent return on your investment. Buy-to-let mortgages are often more expensive than loans for homeowners because they tend to bring a bigger risk to the lender. It’s still possible to get a good deal though – carefully monitor comparison tables to see what’s available.
The interest rate you pay on your buy-to-let mortgage will depend factors including the size of your loan and your rental income. Lenders will require a higher deposit for buy-to-let and if you have a deposit of 40% or more you’re likely to get a better deal.
Most buy-to-let mortgages are interest only, so once the term is up you may need to sell the property to clear the loan. This is another reason why it’s important to consider ease of re-sale when choosing your flat.
There are different types of buy-to-let mortgage, including:
Tracker mortgages – where interest is set at a certain percentage above the Bank of England’s base rate, which means the interest you pay can change.
Discounted variable mortgages, which have a rate that is always a set amount below the bank’s standard variable rate.
Fixed-rate mortgages – these are set at a low rate for two, three or five years depending on the deals available at the time. At the end of the period you’ll be moved onto a standard variable rate, at which point you will probably need to look around for a better deal.
If you are thinking of investing in a buy-to-let property, Assetgrove’s guaranteed rent scheme takes care of everything and provides you with a fixed guaranteed rental income for up to five years. Contact us know to find out more.