Be it a science, an art, or something in between, finding the best type of property for buy to let is far from easy.
First, there’s location to consider. How much demand is there in the local market? Where is the market heading in terms of prices and rents? What sort of competition for properties and tenants can you expect? Is the area about to benefit from improvement or regeneration?
Then there’s finding a property to suit your target market. One- and two-bedroom flats with good transport links and proximity to entertainment tend to suit young professionals, for instance, whilst larger homes in quieter, safer communities near good local schools will appeal to families.
Finally, you need to find a property that’s suitable for a mortgage. The commercial viability of an investment is only one side of it; there are innumerable risks that buy to let lenders want to shield themselves from, and it pays to know when a lender will see a safe bet—or a money pit.
Something old, or something new?
From an investment standpoint, the decision between a period place, a new-build or an ex-council or local authority property hinges on one thing – whether you’re investing for income or capital growth. Generally speaking, very few properties consistently offer both.
- New builds are attractive to young, professional tenants and typically require less maintenance, keeping your overheads in check. However, they may not appreciate in value very quickly, and might even lose value in the first year or two.
- Period properties are in limited supply; as such, they hold their value well. They can often be costly to modernise and maintain, however, and offer narrower yields as a result.
- Ex-council or local authority properties sell very cheaply, and tend to offer solid yields because of it. That very feature works against you at sale, however; they rarely appreciate in value as well as the other two property classes.
New builds – knowing how to pick them
Because of the proliferation of new builds, it’s easy to pick a dud. It can also be hard to find a mainstream buy to let lender who will finance one. This is because new-builds tend to form part of large developments, and lenders like to limit their exposure to individual projects.
Your best bet with a new-build may be to opt for a smaller development. With fewer identical properties, your own is more likely to hold its value. It may also be easier to obtain buy-to-let finance for a property in a small development, as any lender you approach is less likely to have already invested substantially in it.
Potential problems with period properties
Period properties are in far shorter supply than new-builds (the whole point being that there are no more being built). They have charm, character, and lasting appeal, which is why their value often holds up over time.
The potential downside – and it’s a big one – is that you may well pump in a lot of this value yourself, in the form of ongoing maintenance. Depending on how hands-on you are as a landlord, you might find that a period property sucks up a lot of your cash, time, or both. These ongoing running costs will eat into your yields, and as you probably shelled out a fair bit for the property in the first place, they might not be that wide to begin with.
You might also find that a period property has certain archaic construction features that scare off lenders and make upkeep even trickier – more on this below.
Keeping your own council
Ex-council and local authority properties are cheap and well-built. Some landlords invest minimal refurbishment funds and let them out to low-income tenants, offering long lets that allow them to redecorate and refurbish as they wish; others renovate them to a high standard and let them out to professionals. Because of the low entry cost, their yields are still generally high.
The stigma of owning an ex-council property prevails, however, and most places will sell for 10%–20% cheaper than a comparable local property.
It’s all in the construction
As I mentioned above, older properties are likely to include construction features that might make it difficult to renovate or repair them, or even secure a mortgage on them at all.
Period properties were likely built with local materials that are incompatible with modern construction methods. The introduction of non-porous cement into a lime-rendered wall will likely ruin it, as it will prevent the lime mortar from being able to ‘breathe’ and cause damp problems.
If a period building is also listed, modifying it will be even more difficult, as it will require the permission of the local conservation officer and will have to be in line with the existing character of the property. The problems with listed buildings don’t end there – if you buy one that has been modified without listed building consent (LBC), it will be your responsibility to fix – so be sure your lawyer earns their money and chases down the paperwork!
Many local authority properties, particularly those built in the decade-and-a-half following World War Two, were built with non-standard methods.
After the War, there was tremendous demand for social housing and scant materials to meet it. This resulted in swathes of council houses – and some owner-occupier homes – built with concrete panels, steel frames and timber.
A survey will be needed to confirm whether the construction of a property is non-standard, and if it is, most buy to let mortgage lenders won’t accept it as security for a loan.
- Concrete panels are typically denied because the panels comprise thin concrete covers over a steel mesh, which is prone to rusting as moisture penetrates the concrete over time.
- Similarly, steel frames are subject to corrosion, affecting the integrity of the property.
- Timber-framed properties with a rendered or partial brick skin are also vulnerable to the elements, and many such properties have rotting cores.
Because of the problems associated with these properties, they can be difficult to sell, making them unsuitable for long-term investment.
Properties built in Cornwall and in some of West Devon between 1900 and 1950 are routinely tested for ‘mundic’ – a Cornish word now used to describe the decay of the concrete blocks used in their construction. Some of the local materials used – which were employed in lieu of traditional red clay bricks, which were not available – are known to deteriorate and cause the structure of these properties to weaken.
Many of these properties will require maintenance, and some will be deemed to be unsound. If you have your eye on a property in an area known for mundic block, it may be a good idea to instruct an experienced local surveyor to determine whether or not the place will be a suitable investment.
Help with buy to let mortgages for all property types
Whilst the best type of property for buy to let is generally a conventionally built, relatively modern property with no underlying problems, it is possible to secure finance for properties in need of work or those that fall outside ‘typical’ parameters. For help obtaining finance for such a property, get in touch with our team on the number above.