If it suits your financial situation, buying a property with a view to letting it can be a wise investment, as it can provide an additional income for the investor. However, when choosing a property to buy for this purpose, there are a few considerations to keep in mind in order to optimise the return on your investment.
Here are a few things to consider before you choose a buy to let property.
This is an extremely important element in any buy to let property search. You need to be able to secure tenants easily so locations which tend to be heavily populated are best. Ensure the people in the area are not just elderly, as younger generations are more likely to rent rather than buy. Amenities such as local colleges, universities, hospitals, schools and places of work will always be populated by a younger age group.
Remote, countryside locations will not provide the same range of prospective tenants. Similarly, if the majority of residents are employed in a certain local business, check that there are no plans for this to close, as unfortunately something such as this can transform an area and cause many to move away.
Is it a commuter-friendly area? An area near to a town or city with good transport links will make the location more attractive to those in employment or studying.
It is also worth checking if your chosen location is in a rent pressure zone where rents cannot be increased by more than 4% per annum. You can use this calculator from the Residential Tenancies Board to check if the property is in a RPZ.
The quality of the location will also determine the amount of rent you can request.
Rental market in that area
Before you buy a property to let, it is a good idea to check the level of rental demand in that area and the amount of rent currently being asked for similar sized properties. This can be done by looking online and will help you to calculate what is called a “rental yield”. You can calculate your projected rental yield by browsing to the bottom of Landlords – Herbert & Lansdowne (herbertlansdowne.ie) and using our Yield Calculator.
A rental yield is how much income you expect your rental investment to generate annually in comparison to the property’s value and price of the mortgage needed to buy it. It should also be remembered, that market rates can cause rental amounts to fluctuate higher and lower in the future.
The location of the property, its size and quality will determine the amount of rent you can charge and so the best way to gauge this is to look for similar rental properties in that area online.
Type of target tenant
When looking for a buy to let property, it is useful to have an idea of the type of tenant you would like. This will then determine the locations you choose to search in and the size and quality of property you would like to buy. For instance, if you buy near a university or college and wish to let to students then buying an apartment with a concierge and gym facilities would not make financial sense.
Bedrooms with en-suite bathrooms can be very attractive for tenants who are sharing or students. However, it is important to note that your choice of ideal tenant should not be set in stone, as many locations are attractive to both students and young professionals and a simple change in décor down the line can make your property appeal to both markets.
Quality of your Buy to Let property
Before you buy, you need to have a budget in mind that you are willing to spend. Ask yourself does this budget cover renovations and repairs or are you looking for something that is ready to let.
If the property has what it needs for the type of tenant you are looking for, and is of a safe, warm and clean quality, then very little, other than furnishings, would need to be done.
All landlords are required by law to comply with standards for rental housing. These minimum standards and safety requirements are explained in detail on the RTB website and it is best to be aware of these before you begin your search so that you have a more complete idea of all costs involved.
Some examples would be that properties to let must meet fire safety, health and safety and furnishing requirements. They must be free from damp, be structurally safe, have correct ventilation, access to hot and cold water and free from vermin and pests.
Your budget should not only be designed to cover the price of the property as there are many additional expenses that will occur.
All variables should be considered such as renovations and repairs where needed, cost of furnishing the property, cost of appliances and maintenance costs for any unexpected future repairs or replacements which may occur.
More certain expenses would include insurance, mortgage repayments and interest rates, rental income tax and annual property tax.
If you are buying a property that is managed by a letting agent or property manager, the managing cost should also be taken into account.
Properties with landscaping, grass-cutting, private gym and concierge facilities may also incur further annual expenses for the owner. However these may also allow for higher rent.
Some rental expenses can be claimed back but your budget should be able to cover them all.
It is also wise to ensure that you are financially comfortable and have some extra funds available should your tenant suddenly vacate or be unable to pay their rent on time.
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