Which property types make the best rental investments?
<!--StartFragment-->
' City pads versus rural retreats
"You're not buying an investment property for you to live in ' you're buying it for what demand wants," says proprietor of Belvoir Peterborough, Corby and Cambridge, Terry Lucking. "With any investment property you've got to look at what the market wants and when it comes to city and rural lets there's more demand for towns and cities than there is for countryside ' loads more.
"Why buy something that looks very pretty and it's the kind of place you'd be prepared to live in if it's not in the top of demand? The majority of employment is in towns and cities not in the country and, as a rule, you should always buy where there is employment, education or both. If you look at the age of people in the country they tend to be over 40, not under ' these people are likely to have already bought their properties and therefore will not be looking for rental accommodation.
"Of course, there is demand for country properties ' but anyone investing has got to try and minimise voids and maximise rental income so that means they need to buy where demand is the strongest."
Wayne Mearns, proprietor of Belvoir Southend-on-Sea and Belvoir Basildon, adds, "Consider corporate lets ' there will be much more demand for these in a city location. Plus, review the property's proximity to hospitals and airports ' having good local amenities is often attractive to potential tenants which can make city pads more appealing to an investor."
' Flats versus houses
"Do your research wisely before you make a decision whether to invest in a flat or house for rental purposes," says Terry Lucking.
"When buying a flat you are likely to have to pay management charges, which can range from £100 to more than £1000 a year. Also, look at how much apartments and flats have gone up in the last ten years ' I would say you will typically find that leasehold flats have gone up less than half of what freehold houses have.
"This may be because there are too many on the market. They have rental appeal and are in demand by tenants but, as there are so many available, competition is likely to be tough.
"While perfect for single people without children (as they don't have a garden and are easy to maintain), for those who don't want disturbance or noise and for those who want privacy and outside space then a house would often be preferred. Think wisely about your target market before investing."
Wayne Mearns agrees. "When considering the choice between flats and houses its important to weigh up the costs on lease management/block insurance for flats etc ' it all adds up," he says.
And proprietor of Belvoir Oldham and Ashton-under-Lyne, Lee Shuell, adds, "Flats attract a different type of applicant, single people, professionals, and young couples mainly. Houses tend to be rented by young or growing families that need a driveway parking, gardens etc. Landlords should do their homework on the area with regards to local businesses and nearby commuting towns before investing in an apartment."
' Large versus small
"Large houses attract large families and larger rents but can take longer to rent out than smaller properties," warns Lee Shuell. "They are great while they are occupied but can become expensive if they are left empty. Investors should think whether it is worth buying two smaller houses rather than one large one."
Wayne Mearns agrees that there is a high demand for smaller properties.
"Small family homes seem to be in demand constantly," he says. "My tip would be to look for properties close to rail links and get an idea of the best and most popular schools in the area as this is a good start in finding where to buy. In my opinion smaller homes will bring in a better income and stronger rents and are in higher demand, plus young families are more likely to stay longer if their children are settled in the local schools."
' Multiple occupancy versus single dwelling
"When dealing with HMO room lettings, landlords have got to bear in mind that tenancies won't all start at the same time or finish at the same time," says Terry Lucking.
"This means you're unlikely to have a void on the whole property at once but it also means that the management standard of the common areas, such as the kitchen, hallways and bathrooms is essential in order to let remaining rooms ' and it is the landlord's responsibility to police this.
"From a practical point of view the landlord needs to have a system in place where the common areas are cleaned and maintained, perhaps even taking on the services of a cleaner."
Proprietor of Belvoir Hitchin, Luke Mason, adds, "Generally investors will receive a higher rental income when renting the property as a HMO, but they need to research things such as obtaining permission from the local council and having fire doors plus emergency fire and light systems in place ' these all cost more money, of course, too.
"There are distinct differences between a HMO property and a family home ' and without spending the necessary money the property cannot be converted back easily when you come to cash in your investment."
And Wayne Mearns warns, "Always allow a short fall in expected rent on a HMO property as rooms typically have a short letting life with tenants. All seems rosy on paper but consider the potential hassle of tenants not getting on, re-let fees and greater upkeep etc."
' Students versus non-students
"There are an immense amount of pros for letting to students," says Terry Lucking. "Student accommodation will generally generate substantially more cash flow. People are often very cynical about letting to students but for the people I know ' and the ones we let ' it's been a pretty good experience.
"Students do make a bit of a mess and they do make a bit of a noise but they're youngsters and they're there from September to June ' you've got no change of tenancies, you've got no re-lets and you usually have pretty good financially-secure guarantors. Student letting, which is frowned upon by many people, can be ' if managed properly ' a very financially rewarding experience."
Luke Mason agrees. "Students can cause mess and minor damage to properties, however, as their parents act as guarantors throughout the tenancy any monies owed should be obtained back quite easily," he says.
' Old versus new
"New build properties should always attract an investor more than an older property," says Lee Shuell. "The maintenance issues will be a lot less, they tend to rent out quicker and the potential rental income should be more. Only buy an older property if you are prepared to invest time and money into getting it up to scratch."
Older properties may come with more maintenance issues but they do have other advantages over newer properties, including usually having larger rooms and more storage space ' they often have speedier capital growth too.
Luke Mason says, "Older, well-established homes typically offer a more generous plot size, including gardens and room sizes and personally I prefer older properties, especially those built around the turn of the century ' we have found that these are particularly popular within the local lettings market in Hitchin.
"Saying that, new build properties are also attractive to investors as they require less maintenance, are usually under warranty and are often a popular choice for both landlords and tenants. Both types of property, in a good condition, should let quickly ' however, over a period of ten years, I think there would be more capital growth in an older property."
[BOX OUT]
Ask the experts...
"I think the most important element to investing in a buy-to-let property is the yield and future capital growth potential," says Luke Mason of Belvoir Hitchin. "Any property albeit a flat, house, new build, old build, rural or urban should rent quickly providing the property is presented well and priced correctly.
"Unfortunately, in the climate we are in a lot of landlords don't want to spend additional money on things such as having the property cleaned, presenting the garden well and even minor decorative works.
"Investors should speak to a lettings specialists for free independent advice regarding how to maximise the potential of a property when looking to buy an investment ' and the information given will be unbiased."
Terry Lucking of Belvoir Peterborough, Cambridge and Corby agrees. "A specialist letting agent will be able to help you maximise on your investment," he says. "As a letting agent we want to take on properties which are in high demand areas, which are easy to manage and which are easy to maintain ' we are very knowledgeable about the local market and we will be able to help you find the right investment for you."
' Belvoir Lettings now have more than 140 offices nationwide. To find your nearest Belvoir office, visit their website at http://www.belvoirlettings.com
<!--EndFragment-->