Landlords top 10 mistakes – no5

10 04 2010

I have been on a bit of a tangent for the last few days, but don’t worry, I haven’t forgotten about our landlord mistakes series. So here’s mistake no5. Enjoy!

Mistake number 5 – buying property close to home

Many landlords want to buy property close to where they live so that they can keep an eye on it, or just because it seems easier. Whilst this isn’t always a mistake, it often is.

When buying a property, all things being equal, you should be looking for areas which offer a relatively high rental yeild to cost ratio. In simple terms: you want a house to be cheap to buy but expensive to rent.

If you buy a property in an area dominated by owner occupied houses the pool of tenants is likely to be low and so will be your rent. If on the other hand you buy a property in an area where there is strong demand for rental properties, you are going to be able to get a much better return, and moreover your property will spend more time being full.

Many landlords don’t like to do this because they want to save that money by managing the property themselves, but this can be a mistake too. It may seem to save money on the face of it, but if it means you have to buy a property in a weaker rental market you will be missing out on rental income.

Here in Stoke (where I am based) we have a lot of landlords from all over the country (the world in fact), they buy in Stoke because we have a very strong rental market, you can buy a house for not much over £65,000 and rent it out for a good yeild. In other parts of the country you would have to pay double that for the same rental value.

So when you are looking to buy property, consider if the area you are looking in has a good rent:value ratio. Think about who might live in the area, are they more likely to be families who own their homes? or younger couples looking to move in together. Areas with a university often offer good opportunities too. These are all factors to consider if you want to ensure that your property investment is a profitable one.

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