What are the top 10 rules of buy-to-let?

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The buy-to-let sector is still going strong in central London. Despite some adverse tax changes introduced by George Osborne, a buy-to-let property can still represent a good investment. But as with all investments, buyers need to do their homework first.

Here are ten questions we suggest you ask yourself before entering the buy-to-let market.

1. Are you more interested in capital growth or rental yield? Some buy-to-let investments offer long-term growth. Some offer a high rental yield. Some have a good balance of the two. But you need to be clear in your mind on your priorities.

2. Have you allowed yourself enough time to research the market? An investment property should never be an impulse buy. The more time you spend researching the market, the more confidence you will feel when you decide to make your move.

3. Have you picked the right people’s brains? Reading articles online is all very well, but it is also a good idea to talk to friends and acquaintances with experience of buy-to-let properties.

4. How much flexibility is there in your financial planning? It is tempting to think that, if your buy-to-let investment does not work out, you can just sell the property and go back to square one. But you do not want to put yourself in a position where you have to sell in a hurry later on, especially as you will have to pay the extra stamp duty charge of 3 per cent.

5. Will you be buying with a mortgage? Most buy-to-letters do, and there is a quite a competitive market in buy-to-let mortgages, so be sure to shop around and get the best deal going.

6. Have you budgeted for a rise in interest rates? They have been so low for so long that it is easy to under-estimate the extent to which quite small interest rate rises might throw your plans.

7. Should you focus on older properties or new-builds? There is something to be said for both. If you renovate a period property, it can command a high rent, whereas new-builds tend to be simpler to manage and have fewer maintenance issues. But they are largely distinct markets, and you need to be aware of that. Look at the building’s outgoings as this remains the owner’s responsibility to pay. It will also impact on your potential returns.

8. Where are you planning to buy? It makes sense to target areas where property prices can be expected to rise, perhaps because of new transport links a few years down the line or an area is on the up.

9. Will you be managing the property yourself? You will save on management costs if you do, but you need to be confident that you have the time and the flexibility to deal with any problems that arise at short notice, e.g. plumbing emergencies. It could turn out to be a false economy. There is lots of work to be done, including chasing rent, signing up to the government’s rental deposit scheme, ensuring your tenants have the right to rent on an annual basis, and keeping ahead of everchanging health and safety legislation. Unless you are a professional landlord, it may be better to spend your time elsewhere.

10. Who are your target tenants? Young professionals? Families with children? Students? The buy-to-let sector is made up of a number of sub-sectors, each with its own distinctive feel. You need to have a particular type of tenant in mind and buy a property appropriate to that tenant.

* Contact Kay & Co estate agents for details of properties for sale or to rent in Marylebone, Bayswater, Paddington, Notting Hill, Mayfair, Fitzrovia, Regents Park and The West End (020 7262 2030 Kay & Co)

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