The Buy-To-Let Property Investment Guide

Despite the recent slowdown of the real estate market, the buy-to-let strategy is still the best possible option for real estate investors looking to maximize their returns. The buy-to-let concept, which refers to purchasing a property with the intention to rent it out is steadily gaining traction in India.

The primary factor that drives the value of buying property to rent out is that people will always need a place to live, especially in growing cities so the demand for rental property will always exist. One of the biggest advantages of buying property to let is that you can earn income in two ways. One is through the rental income that comes from tenants.

The other is through capital growth, as the value of property itself will appreciate. Owners of multiple properties have the potential to earn monthly rental income. If you are planning to buy a property for renting out, keep in mind these useful tips.

Understand the common pitfalls of buy-to-let properties

Before you purchase a buy-to-let property, it is important to understand the risks associated with this type of property investment. Rental incomes may be high at the time you decide to buy a property, but the real estate market is cyclical and growth may slow down at any time.

If the market declines and rental income decreases, will you be able to continue holding your investment?

Furthermore, interest rates on home loans may be low when you decide to purchase with interest payments comfortably covered by rental income. But will happen when rates rise?

Properties can remain empty even in the most popular of locations. You need to factor this in as well. One method is to consider the property being empty for two months of the year. Will the income still be sufficient for your budget?

Properties need maintenance, repairs and contingency if things go wrong. If you do not have enough in the bank to cover major repairs, it is better not to invest at this stage.

Choose your property

Since not all investment properties are the same, it is important to determine what type of property fits your strategy. Fully furnished high-end apartments, penthouses and villas are all popular choices and are considered a safe investment option.

The security offered to properties in gated communities has increased their demand among the corporate sector who wish to rent independent houses for their senior executives.

Location is key for buy-to-let

The potential earnings of a buy-to-let property is heavily influenced the location of the property. When investing in a buy-to-let property, it is important to consider the quality of the neighborhood, environmental quality, job market and overall economic outlook. You should have an in-depth look into the neighboring areas and establishments in the nearby locality.

A buy-to-let property in an area with a growing job market is one of the best investments you can make. There is always a large migration towards places where there are more job opportunities. Other locations with high income potential are areas with good connectivity, residential families, or with a university.

Work out your budget and expected rental income

Even if you plan to rent out the property, make sure you can keep on making payments when there is a vacancy. Determine the rent you are likely to get. Make sure you know how much the loan repayments will be and source of funds available if the property sits empty for a month or two.

Not all properties are rented out easily. Even in popular areas, properties could remain vacant for a few months. Invest for sustainable income and use rental income as a deposit for future investments.

Think about your target tenant

It is a good idea to put yourself in the shoes of your target tenant. What is their circumstance and what type of place would they like to rent? For example, if your target tenants are students, the property needs to be easy to clean and comfortable but not luxurious. Likewise, if they are young professionals, the property should be modern and stylish.

Maintain and manage the property

Getting your first tenant is the first step toward rental income. You need to decide if you will find tenants yourself or use an agent. Although agents will charge a management fee, they will deal with any issues that arise.

They also have access to a good network of plumbers, electricians and maintenance workers. If you don’t have the time to maintain and manage the property yourself, it is better to hire an agent.

The important point is to keep up with maintenance, make sure your property is a nice place to live and build a good relationship with your tenants. This will help you attract good tenants and avoid an extended vacancy period.