Choosing the right buy-to-let property in London

Choosing the right buy-to-let property in London

The reasons for wanting to invest in buy-to-let property in London are plentiful for those who are coming from overseas, and the Far East in particular, something that it has been reported this week is now happening more and more.

Increasing rental prices - the Office for National Statistics reported just this week that rents have gone up by 1.4 per cent in the year to the end of March - and the fact that prices to purchase in the UK are more favourable than in the likes of Singapore, have meant that more and more investors from this area of the world want to come to London to put their money into the private rented sector.

They're not alone, however. According to the latest report released by Paragon Mortgages, the sentiment among landlords and the intention to buy has reached an all-time high across the country. 

The company said that there has been a five per cent increase in the number of landlords expecting demand to increase in the last three months alone, while some 43 per cent are now confident about the prospects of their investment in the next year.

It is a reality, however, that means an increasing number of landlords will be looking to increase the size of their portfolios. This makes for a competitive marketplace that can be tougher for foreign investors to traverse. It is important, therefore, to know exactly what to look out for as an investor in this market when buying properties. 

So just what should Far Eastern investors be keeping an eye out for when they look to purchase homes to let out in London?

Know your tenants

It is all too easy to get sucked into the mindset that buy-to-let is easy money and that all you need to do is purchase something and leave a property manager or letting agent do the rest. Before you buy, there are many questions you should be asking - first of these should be with regards to who your tenants will be.

Depending on who your demographic will be, you'll need to purchase something to suit their needs and demands. For students, for example, you will need to be purchasing something easy to maintain and comfortable without being all-too luxurious and expensive.

On the other hand, if you are pitching at aspirational young professionals, status can be a big selling point. They will be after something stylish, attractive, spacious and modern that they will feel they can really show off.

And families will be after something different entirely. Most often, these will have their own furniture and will want to create a home rather than just live in a house, so they will be better suited to something unfurnished and plain that they can transform themselves. 

When you know who your target tenants are, it is far easier to zone in on properties that will suit them. This will ultimately lead you to have more success in the long run, as it will be easier to market the property to the right people, and you will find yourself with fewer void periods.

The right area

Choosing the right area is one of the key parts of your investment, and although it sounds rather obvious to say that you need to be buying in the right place, it's important to know why.

Some people will make the mistake of looking at the bottom line. How high are property prices in that area and what rent can you expect to bring in if you buy there? This is the wrong way to approach the subject, as you will end up forgetting about why people want to live in your property.

The best way to look at it is to invest somewhere that people want to live. It might be that you go for a safe haven that has always been popular, or you might like to try an aspirational rising area, such as Elephant and Castle, where prices will be lower, but the opportunities in the future are likely to be much better.

Approach this question by asking yourself why people would want to live in a certain area. Again, it ties into your target tenants, but are there good transport links? Is there plenty for families to do? How is the nightlife in the area? These might seem a little obvious, but there really is little better strategy when it comes to choosing somewhere to invest.

Check your numbers

Perhaps most importantly, it is vital to make sure that you've done all your sums before you take the plunge and commit some of your money to the buy-to-let market. After all, you're looking to make a return, so you need to know it's possible before you hand over your hard-earned cash.

You need to examine the areas that you want to buy in and weigh up what you will be expecting to spend on homes you want to buy against the money that you expect you will be bringing in through rental payments.

It can be worthwhile to ask for help from a financial adviser at this stage as well. Work out what you will be spending from month to month on your mortgage for the home and then ask if the rental income will be likely to cover this and give you a profit. Most landlords look for the rent to cover 125 per cent of the mortgage costs so they make something from letting it out. 

You'll also want to ask yourself what would happen in terms of affordability if you had no tenants for a couple of months. Would you still be able to meet mortgage payments? And don't forget to factor in landlords insurance and other costs as well. After all, there's no point investing if it's not going to make you some money in the long run.