Is buy-to-let past its sell-by?

Anyone contemplating becoming a buy-to-let landlord needs to think carefully about the commitment. Rising interest rates and house prices mean that in many areas the figures just don't add up any more. If you are determined to go ahead, then initial research is essential: decide what market you are targeting, do your sums, and buy carefully.

'It all depends on what you are trying to achieve,' says Jonathan Holland, director of the Transparent Group, a mortgage broking and property development group with offices in Northamptonshire and Gateshead. 'Are you looking for good capital growth in the value of the property; good rental returns, or a mixture of both? It is worth taking professional advice.'

DSS tenants



If you are looking for good capital growth then you might have to buy in a poorer area and take on DSS tenants. 'This brings a host of problems, including making sure the rent is paid,' says Holland.

'In some cases the council pays you the rent directly, while in other cases it goes to the tenant who then pays it to you. While the former means that you get your money each month, tenants are sometimes less than honest about their living arrangements. If they have made a false claim then the council will come to you, not the tenant, to get their money back. If the money is paid directly to the tenant it may not find its way to you. Tenancy laws tend to favour the tenant and you can't get insurance for non-payment of DSS rents.'

Students


The advantage of letting to students is that the market is 'economically immune', according to Judienne Wood, national lettings director for Bradford and Bingley. Many sign tenancies for 52 weeks because they stay to work over the summer. You may have as many as six students in one property paying between ?55 and ?85 a week each.

The drawback is that some drop out of university in the first year - Bradford and Bingley will only consider lets to second- and third-years - and you have to make the property student-proof. 'There is no point buying in a quiet residential area because you can't expect them to behave like top executives,' she says. 'They want to live where there is a bit of life and easy access to campus, and it is best either to pave the garden over or provide a gardener - you can't expect students to mow the lawn.'

You also need to get your timing right. 'A lot of universities put out rental information in January and it is all sewn up by the end of February, although thousands don't do it at the right time and you can still pick up tenants over the summer,' she says. The bank's new service, VarsityLets, is aimed at investors who want to let to students, and includes an insurance policy for non-payments of rent and a liaison service with universities and local authorities.

'Students tend to be looking at properties at the start of the year, intending to move in later on,' says Jonathan Holland. You can make sure that they sign up for a year, but this means that if you get your timing wrong your property could be void for nearly 12 months.

Young professional couples


This group tends to rent for a short time - often just the minimum six months while they find a place to buy. They may have moved into the area because of a new job, and will be looking for good quality accommodation near transport links.

'You can ensure that they are fully referenced by using an agency which will check out their credit, banking, current and previous employers and previous landlords,' says Holland. 'This then allows you to buy an insurance policy which will pay out if the tenant defaults on their rent.

'It will cost about ?60 for six months or ?80 for 12 months and guarantees the landlord gets the rent. It can take more than three months to get someone out of a property and you can't take them to court unless they have missed two months' payments. The policy also covers legal expenses of up to ?50,000 - worthwhile because evictions can be expensive and time-consuming.'

In town centres, tenants are looking for a one- or two-bedroom apartment in a well-maintained block. 'You won't have any problem letting flats for ?300 to ?500 a month, but once you start considering larger apartments the market narrows,' says Holland.

Families


If you are thinking of letting a large house to a family then a garage or off-road parking is essential. There is a market for larger houses, particularly in the south east of England, with companies sometimes paying the rent while a member of staff relocates. 'The better the area and the look of the property, the better the tenant you get,' says Holland. He says the overall buy-to-let market still has room to grow, with only about 8 per cent of people renting in this country, half that in continental Europe.

The Transparent Group: 0191 477 9163. For VarsityLets information email: alex.greaves@bbg.co.uk