How to find good rental properties

11 04 2010

Becoming a landlord can be a great way to build your wealth both today and for the future. But to make the most of your investment capital you will need to make some good buying decisions. So here’s what you will need to consider:

Time horizon

How long are you going to own the property for? If you are planning to own it for more than 15-20 years then you are almost certainly going to make capital gains by the end of it, your main concerns should be to do with location. Making sure you buy in an area which is likely to see good house price growth over that period.

If on the other hand you are only planning to own it for the next 5 years, you will be more vulnerable to house prices falling, so you need to compensate by making sure you buy in an area with a strong rental market. You should also be aware of any major work that needs doing. Buying a house that needs work is fine, as long as you are confident that doing the work will add to the value of the property – improving a run down property is actually a great way to insure against the risks of house prices dropping, and often results in a property that is very lettable.

Credit

If you want to make good profits in property you will need to make sure your credit is good. This doesn’t mean that you shouldn’t get started whilst your credit isn’t great, but you should be constantly working to improve your rating, because ultimately that will reduce your mortgage rate, which will save you thousands over the next 10 years.

You should also keep money aside, in case of unexpected repairs. A sudden problem can cause even bigger problems if you can’t afford to fix it immediately. You will either lose tenants, or be put in a position which could damage your credit. In either case you will lose money. Having cash reserves also allows you piece of mind, and makes the job of being a landlord a whole lot more enjoyable.

Don’t over pay

It goes without saying that the more you pay the less you make in capital gains, but additionally: the more you pay, the more you need to borrow, so the more interest you pay. Paying over the odds could also mean you can’t afford to buy second property as soon. So as you can see, getting a bargain can make a small profit become a substantial one.

The best way to ensure you don’t over pay is to be patient. Don’t fall in love with a particular house, you won’t be living in it after all. Make lots of offers, and sooner or later someone will accept. And remember this maxim: If your first offer is accepted, you have over paid.

The key to being a successful landlord is to be patient, invest plenty of time learning about the area you intend to invest in, and wait for the right opportunity to come along. You might own your investment for the next 20 years or more, so there’s no hurry.

The best tip I can offer?

Decide on an area with a strong rental market, and find a good letting agent. Talk to them, get every bit of advice you can, and you will soon be in a much better position to find the best opportunities in the area.

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