A lot of people who've got excited about buy-to-let over
the past few years have rushed out and bought the first
property they've seen or one that's closest to them so it's
easy to keep tabs on or invested in an area because they
know it and it's familiar. Unfortunately, if you do this
without first doing your research you could end up with
a property that's difficult to rent because there's little
or no demand for that type of property in that area.
Before
you even venture into buy-to-let there are a few things
to consider and in this article I'll tell you about the
common misconceptions and the correct way to do your research.
Most
people think they're doing great research if they have a
chat with one or more estate agents and ask whether certain
properties would rent out and for how much. Please remember
that estate agents are in the business of selling houses.
They are salespersons. They are not there to ensure you
are successful in the property business, nor are they there
to help you with your research and most of the time you'll
find that the estate agent representative in whom you're
putting so much trust isn't even a property investor himself.
Much of this advice is still valid if you're talking to
a letting agent. The only true way to gauge the demand is
by testing the water.
One
way of doing this that's favoured by smart investors is
to place an ad for rental of the type of property in the
area you're thinking of buying. Yes, this means advertising
for rent a property you don't have. Why? Because if you
start getting calls, you'll know there's a demand. This
can also throw up demand in areas you weren't considering,
for example, I've advertised a property in one part of South
Wales and had several people calling me up asking whether
I had anything in a town some 30 miles away. This tells
you that there's an unfulfilled demand in that town, so
you might switch your property hunt to there.
If
you do get calls you must let them know that the property
has been let, of course, but be sure to take contact details
for all callers because they make up your ready made market
if you go ahead and purchase. In fact, you will want to
keep these details in the long term because people who rent
frequently move around and when you have a void you should
go through your list of potential renters just to see whether
they're in the market for a move at that time.
I
met a couple recently who were interested in running HMOs
(homes in multiple occupancy) in a town in the Home Counties.
When they visited the local letting agents they were told
there was no demand for such properties so they placed their
own ad for bedsit-style rooms and, guess what, they were
inundated. At the time I spoke to them they'd already bought
several properties, converted them to HMOs and were successfully
renting them out. In fact, they'd pretty much got the HMO
market all sewn up in their town of choice.
Letting
agents are useful, though, if you put yourself in the shoes
of a potential tenant. Call them up and pretend to be a
potential tenant for the type of property you're interested
in letting out. If they come up with a list of particulars
that would circumnavigate the globe, you can be sure there's
oversupply. If, on the other hand, they don't have much,
that's good. Go and view the properties to check out the
competition and then keep checking back to see how quickly
the properties they're offering you remain on the market
before being let out. This gives you a very good indication
of the real state of the market.
Another
thing you'll want to look at is what's going on in the area
with regard to the type of people who are seeking houses
and what they actually do. For example, is there a large
student population? If so, you will know that much of the
rental demand will be driven by term times and that your
properties will be best equipped to cater for people who
need to study (and, perhaps, party!).
If
there's an airport, hospital, factory or offices where people
work round the clock, quiet properties with bedrooms away
from traffic noise would be in more demand than those overlooking
school playgrounds.
Contact
accommodation officers at the hospitals or universities.
Even big firms may have someone in the HR department who
helps in finding accommodation for incoming workers. If
you get friendly with these people and become known to provide
decent accommodation, you may never have to advertise again.
One
caveat here would be to be careful about choosing areas
where there is only one major source of tenants. Although
I don't own property in the area, I wouldn't mind betting
many landlords felt the pinch when more than one factory
closed its doors in The Midlands last year.
In
short, find a demand and fill it and you won't go far wrong.
