10 things to consider before moving into the buy to let market

At this moment in time there are property markets around the world which continue to go from strength to strength, with the UK a particularly prominent example. As you might expect, as property prices continue to move higher this attracts more and more potential investors looking to make “easy money” in the buy to let market. However, if this was “easy money” then we would all be doing it – so what 10 things should you consider before moving into the buy to let market?

Are your finances strong enough?

The idea that the rent from your property will cover your mortgage liabilities and any other costs sounds perfect but in reality it is not always the case. You will need to consider whether your finances are strong enough to cope with a potential period of zero income if your property had no tenant or how would you cope with issues such as non-payment of rent?

Why are you buying property?

If you’re looking to build up a buy to let property portfolio then you really do need to have an interest in property and property investment. This is not for everybody and it is not as simple as many people would have you believe.

If a property looks too good to be true, it probably is!

Many people fall into the trap of buying relatively cheap property only to find out there are major structural issues or other potentially costly problems in the long run. Ensure that you do all of your research and all of your homework before buying any property and do not fall into the trap of buying a property which looks too good to be true, and is!

Quote from PropertyForum.com : “A recent report suggested that there are on average eight buyers chasing each and every property for sale in the London area. Is this your experience of property markets around the UK?”

What is your long-term strategy?

The vast majority of people with relatively large buy to let portfolios started out relatively small and grew their business and their portfolio in the long-term. If you are looking to move into the buy to let market and build your portfolio on a long-term basis then you need to have a strategy in place. Are you looking for relatively undervalued properties? Are you looking for areas which may be up and coming in the future?

What would happen if you lost your full-time job?

There are very few people who move into the buy to let market lock stock and barrel without some kind of full-time employment behind them to assist with their income. If you have a job which gives you monthly income and you move into the buy to let property market, do you have enough savings to get by if you lost your job in the short term? This may be a nightmare scenario, it may be something unlikely to happen but the fact is that many people have got themselves into serious financial trouble in this manner.

Partnerships are potential trouble!

The property market is littered with friendships and businesses which have fallen by the wayside due to disputes regarding buy to let property portfolios. It is very difficult to find two people with the same long-term ambitions, who are able to work together long-term without any major disagreements and who have the same financial situations. Partnerships with a friend or an acquaintance you know very well all sound great on paper but situations do change and friendships can be strained.

Is your portfolio tax efficient?

There are many ways to offset ongoing costs against your property portfolio income and some of these may be better executed within a company as opposed to holding assets in the name of individuals. You should take long-term professional advice on the tax efficiency of your property portfolio to ensure that you are making best use of the allowances and deductions available.

Stay within your comfort zone

For every winner in the buy to let market there are many people who started well, built up a relatively strong portfolio and then overstretched themselves into areas in which they had little or no knowledge. If you have knowledge of the buy to let market for young professionals then why venture into other areas? Know your market, know your customer and try to remain within your comfort zone as much as possible.

Do not be afraid to admit defeat

There is no successful business person in the world that has not encountered problems, not made mistakes and not lost money. You will buy investments along the way which could be trouble, in which you should cut your losses but many people are stubborn and determined to make these work. The simple fact is that some investments will go wrong and you should ensure that your time is spent on potentially long-term successful properties rather than fighting a battle which you might never win.

Enjoy yourself!

If you do not enjoy investment, and specifically investment in property, then there will be a limit to how successful you can be in the buy to let property market. Those with a genuine interest will pick up tips and tricks along the way, they will keep themselves up to date with the market and they will act on their gut instinct after researching specific areas in specific markets. It may take time to build up this “gut instinct” but if property investment becomes like a mundane 9-to-5 job for you then perhaps you should think again. Those with a genuine interest will be the most successful and those who are investing in property through gritted teeth may not always be as focused as they could be.