Strategy: Buy To Let
Article 2 – March 2010
Simon Zutshi
Simon Zutshi is a financially independent, professional property investor, with 14 years experience of investing in residential property To contact Simon email simon.zutshi@justdoproperty.com Resources |
Golden Rules for Buy to Let investing
Now is a fantastic time to be investing in property as long as you know what you are doing.
In this article I would like to share my 5 Golden Rules which will help you minimise the risks of investing and maximise your profit.
1. Always buy Below Market Value from motivated sellers
Instead of looking for a property you like and then negotiating with the seller, you need to find motivated sellers who will sell you their property well below the market value, and then decide if you want to buy that particular property. The amount of discount will vary depending on the motivation of the seller and the general market conditions. In a rising market you may be happy with a 15% to 20% discount. In a falling market you would want a bigger discount of 25% to 40% to give you more of a safety buffer in case prices come down further. This means that you make a paper profit the day you buy instead of waiting for the long term price rises.
2. Buy in an area with strong rental demand
Remember you don’t want to be paying for the mortgage on your property. That is what you have tenants for. You must make sure there is good rental demand in the area such that if your tenants ever leave, you can quickly find replacement tenants at the full market rent. You can easily check the demand in the area by using the internet and speaking to local letting agents and other investors.
3. Buy for cash flow
Your property should create a monthly positive cash flow for you such that it is an asset rather than a liability. Although we expect property prices to rise in the long term, if you buy your investments “as if prices will never go up again” you will be forced to only buy properties which give you great cash flow now. Extra cash flow will help you to build up a cash safety buffer, and will help you cover potential rise in interest rates in the future.
4. Invest for the long term buy and hold
Some investors buy and sell property to make a profit. The real profit however is in buying and holding for the long term to benefit from significant capital growth. If you plan to hold for the long term and your property is rented out creating a positive cash flow you do not mind short term fluctuations in price. By long term I mean at least five years in the current market.
5. Have a cash buffer
The investors who get into difficulty are often the ones who do not have any spare cash to access in case of an emergency. As an investor you will incur unexpected costs and so you must have some spare cash to cover these instances. The size of this buffer depends on your personal level of risk.
In my next article I am going to explain how you can work out the return on investment on your investment properties so that you can work out which is the best property to buy.
Simon Zutshi, who is a financially independent property millionaire, is the author of the Amazon No 1 Best Seller “Property Magic” and founder of the property investors network who hold monthly evening seminars for investors in 12 cities around the country. Find out more details at www.pinmeeting.co.uk
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