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​Our top tips on buy-to-let

10/02/17
Kate Warren Image By Kate Warren

Buy-to-let can be a great investment alternative to low interest rates and equity market instability, but it's vital you do your homework before taking the plunge. With decades of experience helping investors choose, purchase and then manage their properties, the team at Le Gallais can help you with all stages of your purchase. We've created this top-tips guide to help you make the right investment.

These tips will help you make the right choice for your buy-to-let property.

1. Research the market

In general, Jersey has a healthy private rental market that creates annual income yields of between 4% and 8%, depending on the housing category of the property you purchase and its desirability in the market place.

When choosing a property, remember that Jersey's housing market has quirks that aren't found anywhere else in the world. Not only should you satisfy yourself that you are buying a property in an attractive location, but you need to be aware of the property's status in regard to the housing law.

You should find out whether you are buying a property that can only be let to people who are 'entitled' or 'licensed' under the law. If this is the case, your property cannot be rented to someone whose status is 'registered'. Naturally, this affects the potential market for tenants and has a limiting effect on the rent that you can charge.

2. Be honest in your calculations

This is particularly important if you are buying (and letting out) on a tight budget. When you invest in a buy-to-let property, you tie up tens of thousands of pounds of your money, which won't be available to you should you need it in the short term.

Your calculations should focus on the annual income that the property will generate rather than on capital gains. Although Jersey's property market has seen prices rise for decades, there is no guarantee that this will continue. You should look at similar properties on the rental market to give you an educated estimate of the rent that you'll receive and choose the lowest likely return when making your calculations.

This 'worst case scenario' attitude to your planning should also be used when calculating likely maintenance costs and should also be applied to mortgage interest rates, which are likely to rise, if only because they can't go much lower, in the coming years.

3. Think about your target tenant

When it comes to finding a tenant, you will be in the position of marketing your property and, like all good marketers, this means that you should determine the kind of people that you'd like to rent to. When you are looking for a property you should continually ask yourself whether it would be attractive to your 'ideal tenants'.

Don't fall into the trap of buying a property that you want. You must have an unemotional approach to property selection. Is this somewhere that your target tenant would choose?

4. Negotiate the price

A buy-to-let property is an economic investment, so you should take a business-like approach to agreeing the price. You should negotiate the purchase price as low as you can. Quite simply, the lower the price, the greater the profit for you.

5. Shop for a mortgage

Similarly to price negotiation, the cost of your mortgage (in terms of interest rate) will affect the return you make on your investment. It pays to shop around, look at the different terms and consider a variable interest rate, not only because they are usually lower than fixed rates but because you don't suffer any penalty charges should you choose to cash in early on your investment.

These are just a few of the things you should bear in mind when considering a buy-to-let investment. If you'd like more advice, please get in touch: we can advise on both the purchase and the ongoing management of your property.

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