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Don’t fall into the BTL trap – do your research

Don’t fall into the BTL trap – do your research

Category: Buy To Let

Updated: 05/08/2014
First Published: 05/08/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Are you thinking of getting onto the buy-to-let bandwagon? If so, you're not alone. The sector has enjoyed a surge of popularity over the last few months, particularly with the pension reforms announced in this year's Budget, which means that buy-to-let (BTL) can become a viable possibility for retirees seeking a long-term income. But, a word of caution – make sure you do your research first.

It sounds simple enough, but it's amazing how many potential landlords fail to take heed of this advice. In fact, research from Platinum Property Partners has found that just 18% of BTL investors did a lot of research before they entered the market, while 25% sought no advice and carried out no research whatsoever. Just 43% said they fully understood what they were doing, which means that over half of BTL investors surveyed may not be achieving the returns that could be possible.

And the difference could be marked. According to the Office for National Statistics, the typical BTL investor in the UK has a property portfolio worth £650,000. Additional statistics from Platinum Property Partners found that investors achieve an average gross yield of 5.6%. So, according to their calculations, if £650,000 was invested in property today and a consistent yield of 5.6% was achieved over a typical investment period of 15 years, then it would be worth in excess of £1.63m by 2029.

This is already an impressive return of £980,000, but it could be even better if suitable research was carried out. The calculations show that if the average investor increased their yield by just 1% – which could potentially be achieved by conducting research on the likes of property location, as well as seeking advice about income potential and reducing costs – the value of their investment would increase by an additional £80,340 in the same 15-year period through income and capital growth.

£80K is nothing to turn up your nose at, so by failing to conduct the necessary research, you could well be missing out on reaching your full potential.

Steve Bolton, of Platinum Property Partners, commented: "As with any investment, extensive research and planning for buy-to-let investors is paramount. It is astounding how little thought and preparation many investors are giving before diving in and making such a substantial investment decision.

"Neglecting to spend a reasonable amount of time and energy to devise a strategy for a buy-to-let investment can prove costly. The fact that increasing one's yield by a mere 1% can increase the value of an investment by over £80,000 in 15 years goes to show how far good preparation can go. Taking a lacklustre approach could mean investors miss out hugely in the long run."

As Steve points out, BTL isn't a one-size-fits all solution and there are various choices that need to be made in order to reflect the individual's own circumstances and goals, which means suitable research and advice is even more important.

Pinpointing the right type of property in the right location, for example, can make all the difference, as the potential returns can vary substantially. "This is precisely why research and advice is so key to unlocking the full investment potential for each property," added Steve. Finding the right BTL mortgage can be just as important, of course, thereby ensuring your budget, returns and outgoings are suitably matched to give you a decent profit.

As with so many things in life, it's all about being prepared. If you don't arm yourself with suitable knowledge, you'll stand a much lower chance of succeeding, so make sure you're completely informed before you step on the first rung of the BTL ladder. Take advantage of every resource available to you by doing your own research and seeking suitable advice, and you could be closer to achieving the best returns possible.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.