9 Buy To Let Tips For New Investors
Create passive income, benefit from capital growth, achieve financial freedom, become a millionaire, and do it all with other people’s money.
With property investing surrounded by these buzzwords, it’s no wonder that people enter buy-to-let with blind optimism.
But as good as buy-to-let (BTL) can be, it’s not as easy as you might think.
The reality is that many investors will achieve mediocre results or even lose money – especially if it’s their first time investing in BTL.
To stop you from getting burned, here are nine buy-to-let tips for new investors.
1. Know Your Numbers
Knowing how to analyse a deal is possibly the single most important skill of being a BTL investor.
Without knowing how to calculate yield, cashflow and ROI, you’re shooting in the dark… and you don’t want to be doing that with large amounts of cash at stake.
Luckily, crunching the numbers on property is relatively straightforward. Once you get the hang of a couple of basic formulas, it’s all about finding “comparables”.
You need to find similar properties in the same area, so you can confidently estimate the rent and market value both before and after refurbishment. Online portals (such as Rightmove) make this simple.
You’ll also need to know the cost of initial repairs/improvements, solicitor fees, and mortgage broker fees, as well as the ongoing cost of the mortgage, letting agent and maintenance.
Once you have all your information to hand, the quickest and easiest way of analysing it is to create a spreadsheet.
2. Don’t Ignore The Fundamentals
Researching property investments isn’t all about math (phew!). You’ve also got to consider the fundamentals – basically, what makes the property desirable to tenants?
At the 10,000 foot view, this is all about location.
Tenants are looking for a home that offers convenience or allows them to live a certain lifestyle. That’s why it’s vital that your property is close to good transport links, schools, parks, cafés, restaurants, and shops.
At the street view level, you’ve got to make sure that there’s demand for the type of property you’re considering – different types of properties are going to appeal to a different market.
For example; a city centre apartment is not going to attract the same tenants as a three-bed house with parking that’s five minutes away from the local primary school.
It’s important that you decide on your target market (families, couples, professionals, students) as it will influence the type of property you buy and the standard of refurb you do.
As trivial as this part of the research seems, you mustn’t ignore it.
A deal that stacks up on paper is worthless if you can’t find a tenant.
3. Would You Stay There?
Sometimes you can find a deal with strong cashflow that’s in an area with high rental demand, but you still have a bad feeling about it.
That’s likely because the property isn’t passing the “would I stay here” test.
Asking yourself “would I stay here?” acts as a final quality check.
If the answer’s yes, then you can invest your money worry-free.
But if the answer’s no, then there’s something wrong with the property – and any potential tenants will likely feel the same.
Is the street notorious for being a “bad street”? Are the neighbouring gardens piled high with rubbish? Or do you just not feel safe?
Whatever the reason, if it doesn’t pass the test, don’t invest.
Your intuition is probably right, and you don’t want to be burdened with a problem property.
4. Be Aware of Analysis Paralysis
There’s a strange phenomenon that most would-be property investors suffer from.
After doing everything a new investor should do – read a couple of books on property investing, attend networking events, speak to experienced investors – they end up with that much knowledge that they’re paralysed from taking action.
They spend years waiting for a perfect deal. And when it finally comes along, they second guess their analysis and remain seated on the sidelines.
While being cautious is good, don’t get stuck in the research phase.
Your first deal doesn’t need to be a home run. Good enough is better than perfect if it gets you off the starting line.
You’ll learn so much more by doing than by researching, and the rental income you collect from a “good enough” deal will make up for the time you spent waiting on “the one”.
5. Have At Least 2 Strategies
There are many strategies that you could use to profit from property. But some strategies may not suit an area or property type, which you may only find out once you try it.
That’s why it’s wise to always have at least two strategies for every property.
What do I mean exactly?
Well, if you planned on running serviced accommodation from the property, make sure that it also works as a buy-to-let. If the holiday let market dries up, then you’ll still be able to profit.
Or if you’re planning to rent out the property, make sure there’s at least a small profit if you were forced to sell.
You never know how your circumstance might change.
6. It’s Not Your Home
Investing in property is a business. You’re not buying your own home.
So… don’t get emotionally attached.
If you fall in love with a BTL property, you’ll end up paying way too much for it.
Instead of making emotion-based decisions, rely on your spreadsheet to make decisions for you. If your cashflow and ROI targets are met, submit the offer that works for you.
And if you don’t get the deal, walk away. There are plenty of other properties that will provide the same (or better) return, which is why you’re investing in the first place.
On a similar note, don’t decorate the property with your taste.
Decorate to meet the needs of the market and resist the temptation to get creative. I know it’s hard to believe, but not everyone loves glitter wallpaper.
7. Always Have A Refurb Contingency
In over 15 projects, I’ve never had a refurb go exactly as planned. Something unexpected always pops up.
This is almost certainly going to happen on your first refurb. You’ll wrongly estimate the price of trades, or you’ll lift the carpet to find that woodworms have feasted on the floorboards.
Building some slack into your refurb budget will allow you to cope with any problems that arise.
For a simple cosmetic refurb, you may only need £200-£500 in your contingency.
But depending on the complexity and unknowns of a project, the age of the building, and the level of renovation, it could mean holding 20% or more of the estimated refurb value in reserve.
8. View a Ton Of Properties
There’s a rule of thumb in property that says you’ll visit 100 properties and offer on 10 to find one deal.
In my experience, it’s somewhat true.
Finding high yield properties or good BRRR deals is difficult and requires a lot of legwork. You’re not going to find a great deal viewing only five properties.
Most deals aren’t advertised as such, and you’ll need to physically check for opportunities to add value or to find out if the seller is willing to negotiate.
Attending lots of viewings might feel like busy fool work, but it’s far from it. Each viewing builds your knowledge of the area and property types, and will help form relationships with local estate agents.
9. Don’t Be Afraid To Negotiate
Most people don’t like negotiating. They find it uncomfortable or rude. But getting outside your comfort zone will save you BIG money.
Personally, I’ve saved over £70k by simply asking for a discount.
Once you’ve haggled a couple of times, you’ll find that it’s not that bad and you might even enjoy it.
Negotiating on property is also easier than other forms of negotiating as it’s usually over the phone and through an estate agent.
If you struggle with negotiating, here’s my approach you can try:
- Ignore the listing price
- Work out your maximum purchase price based on our investing goals
- Submit an offer well below your maximum. If you’re not embarrassed to give your first offer, it’s too high. If it’s a hot market, still offer 2-3 grand below your max – sellers like you to increase your price at least a little so they feel you’re “playing the game”
- Raise your offer in decreasing increments (i.e. £2000, £1,000, £500, £200) and always sound as if it’s stressing you out
- Contact your solicitor to send a written offer as soon as a verbal offer has been agreed
Wrapping It Up
Getting your first BTL can be nerve-wracking.
It’s not easy parting with a significant amount of your savings when you haven’t done something before. But the process becomes much less scary once you’ve got your first one under your belt.
Hopefully, these buy-to-let tips for new investors has eased some of your anxieties and gave you the confidence to do your first deal.
If you have any questions you want answered (or tips you want to share) feel free to ask in the comments.
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Hi! I'm Jamie
I’m a 30-something money blogger that writes about saving, frugal living, investing and entrepreneurship.
I achieved financial independence at 30 through hard work, saving and learning to invest.
On this blog, I share everything I've learned about money to help you build a life you love, free from money worries.
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