Many property investors who are buying property for investment purposes intend to rent it out, either on a short or long-term basis as renting a property can provide a good return on an investment. For anyone who’s going to have tenants living in their property, it’s essential that you produce an inventory first, before anyone moves in.

An inventory is a detailed list of everything that you supply within the property and needs to be completed by all landlords, whether you’re letting the property on a furnished, part-furnished or unfurnished basis.

The inventory is useful for tenants, as they know what is and isn’t included in the property, but it’s also very important for you, the landlord, as it helps you keep track of items that are missing, damaged or have changed when tenants are leaving. The inventory can be used as evidence for tenant deposit claim issues and a copy should be signed and kept by you, your tenants and a letting agent from the start of a letting period.

As well as details of particular items in the property, it’s also useful to use the inventory to make a note of serial numbers, models and manufacturers of electrical and household goods, plus details of any existing scrapes or damage to items.

For more details on the importance of inventories, read our previous post, on how to create an inventory for your rental property.

Check out the other posts in our A to Z of property investment:   

A is for Appreciation – http://www.investment-properties-for-sale.co.uk/2010/03/18/a-to-z-of-property-investing-a-is-for-appreciation/
B is for Buy-to-Let – http://www.investment-properties-for-sale.co.uk/2010/03/26/a-to-z-of-property-investing-b-is-for-buy-to-let/
C is for Contracts – http://www.investment-properties-for-sale.co.uk/2010/04/16/a-to-z-of-property-investing-c-is-for-contracts/
D is for Deals – http://www.investment-properties-for-sale.co.uk/2010/05/13/a-to-z-of-property-investing-d-is-for-deals/
E is for Experience – http://www.investment-properties-for-sale.co.uk/2010/05/31/a-to-z-of-property-investing-e-is-for-experience/
F is for Freehold – http://www.investment-properties-for-sale.co.uk/2010/06/28/a-to-z-of-property-investing-f-is-for-freehold/
G is for Goals – http://www.investment-properties-for-sale.co.uk/2010/07/a-to-z-of-property-investing-g-is-for-goals/
H is for Home Improvement – http://www.investment-properties-for-sale.co.uk/2010/10/a-to-z-of-property-investing-h-is-for-home-improvement/

A flying freehold is a phrase used to describe a situation where a small section of a freehold property is built on, or over or reaches onto a neighbouring property. For example, it may be that an upstairs room in a semi-detached or terraced property is built over a ground floor room in the next door house. Or a room upstairs may lie over an outside shared passageway.

It’s more likely to occur in older properties and only ever applies to freehold properties – leasehold properties are not affected. Unfortunately, it is an issue that can become a property legal minefield and may cause problems when you’re buying the property, let alone sorting out who should pay for repairs or upkeep on the adjoining areas of the building.

Banks may be reluctant to lend money for mortgages where flying freeholds are concerned and it can cause problems later on if you sell the property too. Legal issues can get complicated if there are structural problems to deal with, or if the owner of the adjoining property objects to work being carried out.

If you do want to go ahead with purchasing a property with a flying freehold, then it’s not necessarily all doom and gloom and they can make good rental properties. It is, however, essential to get a solicitor to draw up terms that will help cover you in case problems occur further down the line. Purchasing indemnity insurance is a very good addition to have too.

When you’re making an investment, and in this case in property, then it’s important to know what return on it you’ll get. Anyone making an investment, rather than a personal purchase, wants to know that the investment will be worth their while and that they’ll make some money on it, either in the short or long term.

The term rental yield is used to describe the amount of return you get on your investment property. It’s expressed in terms of a percentage, such as 5%, 7.6% or 10%.

Calculating The Rental Yield of an Investment Property

Rental yield can easily be worked out with a mathematical calculation. Some people work out the gross rental yield, but for a more accurate figure that takes into account how much you’ve spent on expenses, you can work out the net rental yield.

To calculate the gross rental yield of a property investment:

Divide the annual income from the property by the purchase price, then multiply it by 100. This will give you the percentage rate of return, or rental yield.

To calculate the net rental yield of a property investment:

Divide the net income from the property (how much income you have after any expenses have been taken out) by the purchase price, then multiply this figure by 100. This gives you the net rental yield percentage, or rate of return on your property investment.

Knowing the rental yield of a property is important for property investors as it shows how well, or not, your property is performing. If you’re considering investing in other properties, it’s also very useful to be able to calculate the potential rental yield of a property, as it can help you decide whether or not a particular property is likely to be a good investment for you.

p.s. HOT TIP – to maximise rental yields the best advice (for those who do not want the hassle of HMO properties) is to buy low priced houses with at least 3 beds and preferably 4 and rent them out to Local Housing Authority tenants (LHA).  You can get the same rent for a 4 bed detached worth £200K as you can for a 4 bed terrace worth £75K in the same area. Better still, the rent can be paid directly to you by the government!!

Check out the LHA rents on the website: https://lha-direct.voa.gov.uk/Secure/LHASearchIntro.aspx

If the amount of maintenance and upkeep needed for properties are key concerns for you, then it’s definitely worth carefully thinking about what type of property you want to purchase. Newly built property and off plan properties may win over with their short term benefits of being low on maintenance and upkeep. If the properties have been built and finished well, then in theory they shouldn’t need too much maintenance to be done for a while.

Depending on their age and the overall state of the property, then there may be a tendency for older properties to be more likely to require regular maintenance and upkeep.

However, this isn’t to say that old build properties can’t be low maintenance too. If they’ve been well kept and cared for, in the long-term they may offer benefits for being sturdier than some new builds, with more substantial and thicker walls. 

If you’re not that keen on having to sort maintenance and upkeep problems on rental property out yourself, then it’s a good idea to use a letting or rental management agent. They’ll handle the full lettings process for you, including any problems that arise, and will have a list of reliable handymen to call on in times of need, which takes the hassle away from you and gives you more time to focus on the business side of property investing.

Old build versus new build and off plan property, part 1 – Cost

Old build versus new build and off plan property, part 2 – Renting

As everyone buying investment property will be keen to get the figures adding up and tenants in place, this is a crucial factor to consider when you’re deciding whether to buy an old build, new build or off plan property.

Old Build

Pros – If you’re buying your old build investment property in an established area that already has a good reputation amongst renters, then this will help with the rentability of your property. You’ll also be able to gauge a good idea of how much rent you can expect to get, which is useful for when you’re working on your projected figures.

Cons – When you first take on an old build property, and especially if it’s been through a fair bit of wear and tear, then you may need to spend time updating the property or decorating it. Depending on how long this takes, then you could lose out on getting a tenant in straightway.

New Build

Pros – Buying a brand new property does have its benefits, not least the fact that it should be ready for a tenant to move into almost immediately. As far as making money goes, this is good news for any property investor. Depending on the location and how the property has been finished off, you may be able to charge more for it.

Cons – Depending on the stage at which you purchase the new build investment property, and if it’s on a large development where more building is going on, it does run the risk that tenants will end up living on a building site for a while, which some people aren’t keen on. Some new build properties may tend to be smaller and more squashed in than old builds, with smaller sized rooms and less space outside.

Off Plan Property

Pros – Like new build, there are benefits in attracting tenants to a brand new property and, in theory, you may be able to charge more rent as a result.

Cons – The nature of off plan property, and the fact that you’re buying before an investment property is finished, means that you may have to wait a while before you can get tenants in and start earning. Like new build investment property, there’s also the risk that more building work may still be going on around your house or flat, so tenants may be living amidst noisy building work at first, which doesn’t appeal to everyone.

First time property investors often assume that they should find a property in close proximity to where they’re based. The reasoning behind that thought is that they’ll be near by to sort out any problems, can check on it regularly and keep an eye on the local rental market.

But whilst it may seem sensible, serious investors need to look at other factors in relation to the location too. It doesn’t matter whether the property is located just down the road or two streets from you, what matters is whether the figures add up and if it’s a good location for tenants.

Here are six important factors to consider before you part with your cash:

1. Most importantly, you need to consider what the cost of the property is, what the return on the property is likely to be and what rental yields you could achieve. 

2. Study the existing rental market in that area and the prices being achieved. Is it in an area where the demand for rental properties is outstripping supply?

3. Is the property near popular children’s primary or secondary schools and could it attract families looking to rent?

4. Is the property located near universities or colleges and would it be attractive to the student rental market?

5. Are there any large hospitals or factories nearby? If so, it could attract workers needing conveniently located housing.

6. Is the town part of a regeneration project? In time, this could help increase the value of the property.
Although it may be tempting to go with the first property you see available for sale, if you want to make money from your investment, you should do your homework first. If it all adds up, then go for it.