Clearly, before you buy your property you must base your decision on the type of property that fits your targeted tenants needs and requirements. Never buy a property just because you like it! Your personal taste is irrelevant. Remember your original investment objective. It should ultimately dictate your decision on the choice of the type of property you purchase. Often properties with the highest potential rent will have the lowest potential gain in capital value (and visa versa).
Below we have attempted to undertake some basic tenant screening categories.... stereotype the types of tenants and their preferences in terms of types of property, motivations and reasons for wanting to rent in certain areas. You should think about their typical needs in terms of property type, location, and access to transport links, shops and schools. Why do they want to live in that area? Is it because they are a student and need a place near the campus? Are they a young couple commuting into London every day and need a place near the train station? Establish relationships with local estate agents in order to better understand local market demand. You should pick a specific type of tenant from the following (and add this to your documented investment goal) and base your property purchase decision primarily around this target market…
Professionals – the average professionals represent the lower risk type of tenants (compared to students) for buy-to-let lender. Professionals are the most common type of tenants in the UK. Professionals tend to expect modern, low maintenance, fully furnished houses or 2 to 3 bedroom flats with good access to transport links to commute to nearby office centers. They are in they’re first or second job, since graduation and are starting their careers. Quality bathroom and kitchen fittings are a must as is cleanliness, new, neutral decoration and modern appliances. Providing a TV, DVD, satellite, power shower and dishwasher are some of the little labour saving devices professionals look for when choosing a property to rent. Professionals wont have collected much furniture as yet and so fully or part furnished (white goods installed) are important.
Professionals work long hours (keeping wear and tear low), may not have children yet, they commute and are in their mid to late 20’s. Professional couples (or two professional shares) are likely to look after they’re rented accommodation and expect the landlord/ or agent to jump if something breaks like a boiler. There are many young professionals who would like to buy property themselves, but are put off due to high prices and so rent instead. They expect six-month contracts and are usually flexible to move around between quality rented accommodation. The screening process is important in establishing credit worthiness in the young age group.
Families – families clearly need a spacious property (three or four bedroom house) to rent. Separate rooms where doors can be closed are preferable (as opposed to kitchen/ living open plan design of the young professionals) so that kids can play and have their own space away from the parents (and visa versa). A well-maintained and safe garden is important, fenced and set away from public roads or driveways. Again a well fitted kitchen and bathroom are important but consider the age groups - 30’s to 40’s; forget stainless steel kitchen hobs or granite work surfaces (of the young professionals); more traditional, cosy décor and furniture will make families feel at home. Remember storage – fitted wardrobes and cupboards will be very important for all the clutter a family will bring with them. Tenant screening will be easier to undertake as credit histories are easier to establish.
Location: close access to nurseries, playschools and schools for babies/ children and reasonable access to transport links for the working parent(s) is the main priority when choosing the property. Peace and quiet in suburban areas with low crime rates and leafy parks are ideal. Families are most likely to look after their rental home and make a special effort to keep it clean and looked after. One negative aspect to the family is that kids may be miss-behaved and draw on walls or accidentally throw Ribena all over your new carpets. Company lets may be suitable for families who have to move to follow a career and need somewhere quickly while they search for six months for their family home to buy in the mean time.
The Corporate Tenant – this type of tenant is a professional, working for a large Corporate, who may be re-locating them on a short term project or contract basis to a particular office. Rent is paid direct from the company. These types of tenants demand absolute quality properties; decorated, maintained and presented using the best materials and standards. The Corporate tenant will expect fully furnished properties with expensive kitchens and bathrooms with all luxury conveniences – these are important features in being able to charge top rents. Location is key – typically London and other major cities where international headquarters or business parks are based is ideal for your investment property. The Corporate tenant may also want to be near good schools – specially if a family relocation is in the reason for tenant and their family are temporary renting. Beware that the recent collapse of the London Corporate market should be considered relative to other Corporate city’s and business parks across the UK that still attract company let tenants. UK wide the yields of properties let by companies are not as good as the late 1990’s, reflecting the Global downturn in economy and confidence.
Divorced/ Singles – this tenant is most likely to be a career single female or thirty something divorcee. They represent the major demand for rental property in the future. They require flats close to transports links and near shops and nightlife. Security features such as solid door/ locks, door buzzer intercoms are important, especially for single females. The quality of the property should be modern, convenient and furnished and have a low maintenance décor.
DSS/ Housing Benefit Tenants – some lenders may consider DSS/ Tenants obtaining Housing Benefit. They will be lower income tenants. They will not be as careful in taking care of the property compared to families or professionals. Older, larger, less expensive properties are suitable for DSS tenants. See 6.4.5 for details of the risks and letting process.
Retired Couples – there is a very small market for retired couples on a short-term basis. Typically these will be x-homeowners who, for whatever reason need to rent. Their children have moved away and they are entertaining less of the time, so they do not need a spacious house now, instead they require labour saving convenience (such as waste high ovens). Bungalows are ideal with low maintenance gardens. Traditional decor and furnishings throughout.
