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Buy to let for long term gain - HowTo.co.uk

(EMAILWIRE.COM, March 28, 2009 ) With seasoned investors coming back into the property market, Arv Soar, Property Entrepreneur and Director of Property Investment Portfolio (PIP), reflects on the current buy-to-let situation, and explains how to maximise on an investment that will help reap rewards in the future…

Human nature has a habit of ensuring that people jump into the property market at its height when buying is at its most expensive - but investors that stay in the market will be better off in the long-run instead of following the investment herd who dip in and out of the market depending on the UK’s financial situation.

Despite suggestions of a downturn in the market, property has become an affordable source of income with a genuine return on investment available for professional seasoned investors.

Finance is very difficult at the moment with buy-to-let mortgages, stack rates and fees changing daily, but there are plenty of available properties on the market, which can be bought for £45 to 75K if investors keep a cool head and deal with the current economic climate wisely.

New builds have taken over city centre developments, meaning that confidence in the market is over-supplied, resulting in lack of liquidity and low demand for these types of properties, with some going for 60 per cent of their actual value. Some house builders have even had to give up to 40 per cent discounts through desperation and intense competition.

Repossessions are filling the auction rooms, but one person’s loss on not buying the right property in the first instance, is another person’s gain, as some investors have been able to pay for houses below the market value.

Unfortunately, the term ‘new build’ is seen as a dirty phrase in the mortgage market as banks go running for the hills when asked to lend in these uncertain times, creating a ‘Catch 22’ situation.

Property has radically changed recently, so investors need to be looking for something different compared to five years ago, if they are preparing to buy-to-let. Affordable properties with a low capital investment required, such as two up, two down Victorian terraces, particularly in regeneration zones are still growing in value, and are ideal.

Note that the student market is saturated with investors already renting out property, so any investment made into a student buy-to-let must be worthy of competing with other similar properties, as students are in an easy position to demand excellent standards and top notch refurbishments.

It is also important to remember that the UK is just one of the countries that you can invest in property, and not all economies grow at the same rate. Buffalo in the US for example, has a high lettings demand, so don’t necessarily put all your eggs in one UK basket if you can afford to.

Investing in areas far from investor’s own homes could be deemed risky, as there may be problem issues with management, maintenance and collection of rent if a reliable and knowledgeable third party letting agent is not found. If in doubt, it is always best to seek out a specialist who offers a ‘cradle to grave’ package.

If an external company is not used, investors and potential landlords should not just rely on the internet for information. They should visit the local letting agents to look into what type of tenants the styles of properties attract and how much rent can be achieved. However, the internet is a useful research tool when searching for information on property price trends, and Government and council planning for investment in the area.

Investors should not get drawn in by marketing hype, and never get emotionally involved in a property. It is essential that at least two weeks is spent in the area personally to find out what happens each time of the day, and to understand local people’s lifestyles and any social problems. All research needs to be carried out personally - from information on the property and area, to the rental market and resale values.

A positive monthly cashflow where the rental income adequately covers the mortgage is absolutely vital. Investors must never overstretch, and they should allow a contingency budget for unforeseen costs such as maintenance, void periods, and most importantly - interest rate changes. The contingency budget will also need to fund any short-term maintenance.

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