Letting property is of course not new, it has been going on for thousands of years.  But now, due to the improved availability of loan finance, buying property to let is open to most people. Additionally the performance of other more conventional types of investment has been somewhat volatile and alternatives are being sought. 

However, care has to be taken that a flood of new landlords will not outstrip the demand from tenants. There are many considerations when investing in Buy to Let and we at Let Property Strategies hope to be able to help.  

The Main Issues

It is vital that you should be clear at outset of your objectives.  The three most common reasons for investing in a property to let are:

• To produce capital growth

• To produce an income stream

• To combine income with growth

To produce capital growth or to combine income with growth

In our opinion, any property purchase which has, as part of the rationale, a speculative or high element of capital growth requires very special skills and knowledge. These are the skills of a property developer or a speculator rather than those of a landlord. 

If the income stream produced out of a property represents a poor return on capital it may have to be supported by growth in value of the property, in order to produce an acceptable return. This is not unreasonable and in certain parts of the country this is a very important part of the decision to buy. 

Local knowledge is absolutely vital if capital growth is your objective. There are many questions that you need to have a clear view on –

• Am I buying at value for money?

• Is it over or under-priced?

• What is the immediate area like?

• What are the risks to negative equity if prices reduce?

How long you intend to hold the property is an important issue too. Is it for a quick turn or are you prepared for a long hold through times of price fluctuation (including negative equity). Remember that if the rental cover does not produce a good return you will still be liable for any mortgage commitments on the property.

Gearing your capital can help the situation considerably. For example, if you buy outright with no loans, then a 5% increase in capital value gives you naturally enough a 5% return on your capital. However, if you can get away with a 15% deposit only and borrow 85%, and if the rent covers the cost of borrowing, then a 5% increase in the value of the property represents a 33% increase in your investment. (5% / 15% is 33%).

To produce an income stream

If it is done correctly, Buy-to-Let will produce a regular stream of income, which should not fluctuate greatly and should produce an excellent return on capital.  It need not present a great risk to achieve this and certainly not one any greater, in fact usually much less, than alternative investments in stock markets and unit trusts.