A tougher climate for property investors and landlords means it is more important than ever to be selective when property investing and in buy to let. And there’s a lot to be said for using a demand-driven approach when investing. Even if you have to pay more stamp duty, even if the tax situation is less favourable, you can still make a good return on your investment assuming the demand fundamentals are there.
Matching up supply with demand is the basis of every good business of course. Except in the case of buy to let your product is accommodation. There needs to be good demand for your accommodation if you’re going to have a chance at making money from it. If there isn’t demand, or it’s weak, you can’t. It’s really that simple.
Let’s look at why it’s so important to consider demand when getting involved in buy to let:
* Good demand for your property means you can let it more easily, with less work, expense and marketing costs.
* Good demand for your property means you may be able to charge more rent, perhaps with competition for your property if and when it comes up for relet.
* Good demand for your property means you can benefit from rent appreciation, ie. you can look at raising the rent regularly and if your existing tenant doesn’t wish to pay the increase you can find someone else who will.
* Good demand for your property means you can minimise voids, or perhaps even eliminate them altogether with ‘back to back’ lettings.
* Good demand for your property means your yields may be better.
* Good demand for your property means you can pick and choose your tenants, eg. tenants with the best references, or tenants who want to stay long term.
* Good demand could even mean that your property appreciates in value better too. (If there is good demand from tenants there will probably be good demand from buyers too if you want to sell it.)
So, when you are considering investing in a buy to let property, how should you check that there will be good demand for your property?
First of all bear in mind that demand and supply are both relative. There could be a lot of demand for your property but if there’s also a lot of supply that isn’t the ideal combination. The ideal property for buy to let is one where demand for similar properties is high but supply of competing properties is low.
* Look at the area you are considering investing in. Are there lots of other similar properties available to rent? (If there are few or none that may suggest demand is strong.)
* Aim to find out how long similar, vacant properties have been available for. Online rental sites often tell the tale. Do properties go up for let and are taken within days? On the other hand, are there properties which have been empty for weeks? Check for any market statistics that may be available.
* Take advice from conventional, offline letting agents …. ideally before buying not after. They know precisely what types of properties are easy/difficult to let in their area. They know precisely what types of properties tenants are (and aren’t) looking for right now.
* Look out for any new build developments in progress or planned. This one is easy to overlook, but lots of new properties being released onto the market may disrupt a currently favourable supply-demand equation.
While it’s true to say that factors that things like quality of your property, marketing of it and rent levels charged are relevant, levels of demand are the single most important factor – you cannot manufacture demand for accommodation at favourable rent levels if it doesn’t fundamentally exist.
If you are interested in strategies for improving your returns from buy to let you might also find these Property Insider reports interesting: