There has been a marked increase in interest in the buy to let London property market in recent years and the demand has not only been from current landlords who are keen to expand their existing portfolios, but also from first-time investors looking to buy property in London.
With almost 5 million people in rental accommodation across the UK, almost double the number of tenants recorded a decade ago, it’s easy to see why more people than ever before are keen to break into property investment in the capital.
The basics of buy to let
Anyone who is new to the buy to let market will need to have an understanding of the key terminology. Jas Samra, Henry Wiltshire estate agent in Royal Docks, has some top tips to offer those who wish to purchase property to let in London.
“The East London buy to let market is thriving right now, but it’s still important for new investors to do their research well. There are many excellent opportunities in the E16 area for buyers who are keen to profit from the buoyant rental market, with several attractive new developments currently under construction that are sure to prove attractive to young professionals and families who are keen to rent in London. With excellent commuter links and an appealing location, the area around Royal Docks represents the perfect buy to let investment opportunity, however having a good understanding of the fundamentals is key to success.”
Understanding annual returns
The starting point for anyone who is ready to invest in a buy to let property is to have a clear understanding of the net yield that can be expected. This will determine the annual return that can be expected from the investment when viewing the rental income as a percentage of the property’s total costs. However, the gross yield will not take into account any costs, for example service charges, maintenance, repairs or mortgage repayments, and once these have been figured into the equation, the result is the net yield.
There is a simple formula to evaluate the net yield of a property, and although it may seem complicated to newcomers to the market, it is an essential element of evaluating whether an investment is worth the cost. To determine the yield of any buy to let property, the purchaser must subtract the costs from the gross income to find the net income and then divide this amount by the capital x 100 to give the net yield.
Capital growth is another essential term to understand, which basically refers to the increase in the property’s value since its purchase date expressed in the form of a percentage. It can be calculated by subtracting the purchase price from the sale price and then dividing the result by the purchase price x 100.
What to consider when investing in buy to let
Top tips for those who are looking to buy property in London for the rental market include:
- Choose the right area for your purchase. For example, the E16 area has many exciting new developments underway and offers excellent transport links to the heart of the city. This up and coming area is ripe for investment and is proving to be very attractive with young professionals.
- Choose the right buy to let mortgage which enables buyers to maximise on their investment. It is important to remember that most buy to let mortgages demand a lower loan to value than for a residential mortgage, and therefore shopping around for the best possible terms is key.
- Choose a property that is a suitable match for the target tenants.
- Don’t forget to include additional costs such as ongoing maintenance and repairs into the budget.
- Choose a reliable estate agent to manage the property lettings to save the time and hassle of vetting tenants independently.
Buy and let property in Royal Docks
Jas and the team are experts in the E16 property market and can help to find the perfect buy to let property in the area. If you are keen to buy property in East London for the rental market, contact the Henry Wiltshire Royal Docks team on 020 3696 9616 today.