Buy-to-let loans increased by 21 per cent between April and July last year, many granted to owner-occupiers remortgaging their family home to invest in a rental property. But what type of rental property is best? If you have decided to become a first-time landlord, choosing the right investment is critical, whether you opt to buy in London or beyond. We spoke to three very different landlords in search of the best advice.
© Nick Wilkinson/Newsteam
Birmingham resident Simone Schehtman, 39, was brought up in Primrose Hill, so when she and her husband, Michael Bryant, also 39, started to think about buying a property to let in London, Primrose Hill topped their wish list.
"It is a desirable area, lots of people want to live there, and there is very limited housing stock," says Simone. Her parents invested the deposit money as their savings were earning virtually nothing in the bank, and the couple bought two run-down, one bedroom flats through Knight Frank, for just under £400,000 each.
Simone and Michael — who run Teamwork Karting, a corporate go-karting company — took a mortgage to make up the shortfall.
Refurbishment work cost about £65,000, but they hope this will have increased the properties' value, and both flats were rapidly let to young professionals at about £2,200 a month each. The net yield is about eight per cent. Though the initial investment in a prime location was hefty, Simone and Michael have the opportunity for capital growth. The couple, who have two young sons, Jeremy, four, and Oliver, seven months, did not buy in Birmingham because a glut of new-build flats there is keeping both rent and growth performance flat in the city.
Simone says: "It is not all easy. There is a lot to learn and you are thrown in at the deep end. But once you know what you are doing it is actually very exciting."
The young veteran
James Davis's buy-to-let mini empire began in north-west London where, since 2003, he has bought eight rental properties. But as prices increased, James, 36, decided to look further afield — all the way to Swansea. Since 2008 he has taken on seven buy-to-let properties in the Welsh city, the most recent being a three-bedroom period house that he picked up in July last year for... wait for it... £52,000. He then began a 12-week, £25,000 refurbishment of the property and found a family to rent it instantly.
The tenants pay £500 a month for the house, which James has just had revalued at £95,000. "There are just so many tenants who can't buy and there are a lot of properties in need of refurbishment in South Wales — and that is something you don't get in London," he says. James's day job is as managing director of self-service lettings agency upad.co.uk. Another benefit of investing in a place like Swansea, he says, is that rents there are much lower than in London so will barely be impacted by the forthcoming Government cap on housing benefit payments.
"My main rationale was that if you have got money in savings and you are earning two per cent net, then it is not even keeping up with the rate of inflation," he says.
While James, who lives in Queens Park, is happy to invest in Swansea, his advice to new landlords is to search for property in areas with plenty of employment, or local students, and with a vibrant local economy — Brighton would be a good example — or where transport improvements are being made: think Southend, where the local airport is in line for serious expansion next spring.
Joe Farkas ventured into the buy-to-let market in August, with a two-bedroom end-of terrace house in Basildon. Joe, 50, runs a company refurbishing school buildings and doesn't have a pension. He distrusts the stock market and was looking for some long-term financial stability.
Using savings, he put down a 25 per cent deposit on a house in a quiet suburb at a cheap price, as the owners needed to sell quickly. He paid £145,000 for it and his agents, Countrywide, found him a young professional couple to rent it before he had even completed the redecoration. His tenants pay £795 per month, and when all his costs are taken into account he makes £170 a month.
"I am buying another place in Essex, a three-bedroom house in Pitsea, for £115,000, and I plan to add a fourth bedroom." He then hopes to let out the individual rooms for about £70 a week, giving him a potential monthly rent of just over £1,200.
Experts say that it is usually possible to squeeze more rent out of a shared house, because several individuals can collectively pay more than a single household would. However, with more tenants come more problems, and a landlord may also have to accept a higher turnover and more void periods.