TOP 10 BUY TO LET TIPS
We look after the property of many Buy to Let landlords and would be pleased to talk to you about your investment requirements. We can offer advice on which areas to buy and what properties to purchase to achieve good rental returns. Please do not hesitate to give us a call.
Here our Top 10 Tips if you are considering entering the buy to let market
1 Research the market
If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits. Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. Investing in buy-to-let involves committing tens of thousands of pounds to a property and typically taking out a mortgage. When house price rise, this means it is possible to make big leveraged gains above your mortgage debt, but when they fall your deposit gets hit and the mortgage stays the same.
If you know someone who has invested in buy-to-let or let a property before ask them about their experiences.The more knowledge you have and research you do, the better the chance of your investment paying off.
2. Location, Location, Location
A good investment does not mean most expensive or cheapest. It means a place where people would like to live and this can be for a variety of reasons.
Where in your town has a special appeal? Where has good transport links? Where are the good schools for young families? Where do the students want to live? You need to match the kind of property you can afford and want to buy with locations that people who would want to live in those homes would choose.
Asking yourself these questions might sound obvious, but they are probably the most important aspect of a successful buy-to-let investment
3. Do the Sums
Before you think about looking around properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get.
Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments and many are now asking for 25% deposits, or even larger, for rates considerably above residential mortgage deals. The best rate buy-to-let mortgages also come with large arrangement fees.
Once you have the mortgage rate and likely rent sorted be clinical in deciding whether your investment will work out. What will happen if the property sits empty for a month or two, or a big repair bill comes in?
4. Shop around and get the best mortgage
Do not just walk into your bank and building society and ask for a mortgage. If you are looking for advice consider using a specialist buy-to-let mortgage broker.
5. Think about your target tenant
Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be close to the University. Remember that allowing tenants to make their mark on a property, such as painting, or adding pictures or taking out unwanted furniture makes it feel more like home - these tenants will stay for longer, which is great news for a landlord.
6. Don't be over ambitious - go for rental yield and remember costs
To work out your annual return on investment subtract your annual mortgage cost from your annual rent and then work this sum out as a percentage of the deposit you put down.
For a £100,000 property that could rent for £500 per month, you would need a £25k deposit and roughly £2,000 in buying costs.
£75k mortgage at 5% interest rate = £312.50
£500 rental income x 12 = £6,000
Difference = £2,250
Deposit + buying costs = £27k
Annual return = 8.3%
Don't forget tax, maintenance costs and other landlord expenses will eat into that return.
7. Consider renovating a property
It is also worth looking at properties that need improvement as a way of boosting the value of your investment. These can be a good way of boosting your yield provided you purchase at the right price.
Don’t underestimate the amount of work involved and the time it takes to carry it out. Remember that while it is empty the mortgage still has to be paid
8. Be ruthless on price
If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a major asset when negotiating a discount, especially in a tough market such as the one we have now. Do not be afraid to make low offers.
9. Don’t overstretch your finances
Even in popular areas properties can sit empty. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year as this gives a safety margin. Homes often need repairing and things can go wrong. If you do not have enough in the bank to cover a major repair to your property, such as a new boiler, do not invest yet.
10. Don’t ignore your legal responsibilities
Buying a property is only the first step. Will you rent it out yourself or get an agent to do so? Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong.
Many Landlords manage their own property but be prepared to give up weekends and evenings on viewings, advertising and repairs. In addition there are increasingly more and more rules and regulations that must be complied with. Penalties for not following these can be severe.