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Buy to Let advice
Buy to Let is the process of purchasing a house with the sole intention of renting it out.
When looking to purchase a Buy-to-Let property most people will look for a buy-to-let mortgage. This is a mortgage arrangement in which an investor borrows money to purchase property in the private rented sector in order to let it out to tenants.
The lenders will work out how much they are willing to lend the individual through a number of calculations (different to those used for standard mortgages). They usually have a slightly higher interest rate.
Benefits and Risks
As with all property rental, the benefits for a buy-to-let landlord can include a stable income from rental payments, as well as an accumulation of wealth if house prices go up over time.
Rising house prices in the UK have made buy-to-let a popular way to invest. The main risk involves leveraged speculation where the landlord takes a loan to buy the property, with the expectation that the house can be sold later for a higher price, or that rental income will meet or exceed the cost of the loan.
If the landlord cannot meet the conditions of their mortgage repayments then the bank will seek to take possession of the property and sell it to gain the loaned money.
Tips when looking to Buy to Let
- Research the market - You will need to put a lot of research into the market before you think about entering it. You have to know the benefits and the drawbacks of this type of investment.
- Choose a promising area - Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons, for instance in a University city to rent out to students.
- Do the maths - Before you think about 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 for them.
- Shop around to get the best mortgage deal - This will help you with keeping the rent down, enabling you to keep rent at a competitive rate and give you a better profit.
- Consider your target tenants - Think about how the property should look for your tenant. Does it have the right features for the type of tenant you want?
- Consider looking farther away or improving a property - Improving a cheap property is a great way to boost your profits when renting, also don't be afraid to look further away from where you are currently living - aim for areas with good commuting links to increase your appeal.
- Don't be over ambitious with rental yield - Calculate the correct levels you need to make a steady profit but don't go overboard as you risk pushing away potential tenants.
- Don't be afraid to haggle – Buy-to-let investors have the same advantage as first time buyers when looking for a discount, see if you can negotiate down the price of the property.
- Know the pitfalls – Make sure you are aware of the possible negative drawbacks of this and what could happen if housing prices fall. Remember, this is an investment, and as with all investments, there is a risk.
- Consider how hands on you want to be - When buying a property you have to decide if you are going to let it be run through an agent or if you are going to do it all yourself. Agents will charge you for their services, but they usually have good links to professionals should there be any issue with the property. However, a DIY approach could save you money and gives a more personal service to your tenants. Bear in mind that you will likely have to give up a lot of time to make repairs and other things if they are needed. An agent can take away the hassle.
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