Fatal Mistake 4: Buy Buy to Lets with Negative Yields, Hoping for Capital Growth
I still can’t believe people do this but all over the country I see people marketing and selling unattractive BTL deals.
If your objective is to make a passive income do not buy an asset that will cost you money each month! If you have a good healthy salary, earning a net income may not be as crucial – but I would still be hesitant to buy a rental property with a net deficit unless was very confident on the economic situation and future capital growth of the area i.e. new EU country or regeneration area.
You must also factor in management/maintenance costs, and any potential interest rate rises i.e. in the UK interest rates are very low just now, so will go up at some point – I would always suggest aiming for a minimum of a 7% yield in the UK.
Do not just take the selling agents word for this – and if buying off plan try to see exactly what else is being built around it i.e. right now rental demand may be high but within a year may be oversupplied e.g. many city centres in UK.
Too many buy to lets are marketed on supposed discounts, and potential capital growth with little mention of the rental expected, or inflated rental figures quoted. But the most important figure in any rental investment should be the rent expected – as if there is no rental market, this will be a very unattractive investment, and therefore little chance of capital growth unless owner occupier demand.
If figures are not attractive – hold off and wait until improve, or look to other property markets.