Ten tips for buy-to-let: the essential for property investors.
1. Do your own research on the market and where you want to buy, if you know someone who has invested in buy-to-let or let a property before, ask them the more knowledge you have and the more research you do, the better the chance of your investment paying off
2. Look for up-and-coming areas to follow the property press and the internet to see where the whispers are pointing towards as the next areas for investment potential. Look for things like government investment in infrastructure, special events and the introduction of multinational companies. All of these things will help to push prices and desirability up and help rental rates. With enough experience in the market and by reading all of the information available, you will be able to second-guess the habits of the market at large.
3. Before you think about looking around at houses workout what rent you will receive and how much you can borrow. Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments and many now demanding 25% deposits, or even larger, for rates considerably above residential mortgage deals.
Don't forget to factor in finding a tenant and maintenance costs and what will happen if the property sits empty for a month or two? These are all things to consider. Make sure you know how much the mortgage repayments will be and if it is a tracker allow for rates to rise
4. Do not just walk into your bank and building society and ask for a mortgage ask us use the enquiry form on this page. It pays to speak to a good independent broker when looking for a buy-to-let mortgage. They can not only talk you through what deals are available but they can also help you weigh up which one is right for you and whether to fix or track.
5. Your tenant who are they and what do they want? It is important to make sure you know to whom you will be marketing it as a place to live, and then imagine you are the tenant. Ask the kind of questions that they will. For example, if you are renting out a small apartment, a professional couple will want to know how long the commute into the business district is, and if there are good restaurants in the vicinity. A property intended for a young family will probably want to have nurseries and good schools in the area.
If they are students, it needs to be easy to clean and comfortable but not luxurious.
If they are young professionals it should be modern and stylish but not overbearing.
If it is a family they will have plenty of their own belongings and need a blank canvas.
Remember that allowing tenants to make their mark on a property, such as by decorating, or adding pictures, or you taking out unwanted furniture makes it feel more like home.
Using a lettings agency cuts out the work of both finding tenants and screening them but you may lose as much as 10% per year of your income.
There are a number of low-cost credit search and referencing services which landlords can buy through organisations such as the National Landlord Association. Doing a very careful inventory before a tenancy begins is also vital.
6. Consider your property yield. To compare different property values, use their yield. Yield is annual rent received as a percentage of the purchase price. For example a property offering £5,000 worth of rent, that costs £100,000 to buy has a 5% yield. For a £100,000 property that could rent for £500 pcm, you would need a £25,000 deposit and approximately £2,000 in buying costs.
£75,000 mortgage at 5% interest rates = £312.50
£500.00 rental income x 12 = £6000.00
Difference = £2,250.00
Deposit & Buying costs = £27,000
Annual return = 8.3%
7. Don’t count on property price rises who found themselves in 2007 and 2008 lumped with unlettable properties worth less than the price they paid. While capital growth will be what you hope for over the longer term and while history suggests you will get it in the short term most experienced landlords focus on cashflow. In particular make sure your mortgage repayments and other costs will be covered just or don’t quite cover the costs. Make sure every buy-to-let pays its own way with enough profit to make an income. Because when interest rates rise you may lose money.
8. Protect your investment, skimping on insurance could end up wiping out sizeable chunks of your income if there are any problems with your property. Make sure you take out specialist landlord insurance that covers the building and anything you have put in it.
9. Consider of types of buy-to-let HMOs, where multiple tenants are housed within one building, often on separate tenancies. Other landlords have targeted niches such as student properties, properties for those in receipt of housing benefit, or upmarket, luxury properties for executives whose rent is typically paid by an employer. Most successful landlords say they enjoy dealing with tenants, so that is likely to play a part in their choice of investment.
But deciding to pursue one type of investing could limit, among other things, your ability to raise mortgages. Many lenders will not lend against HMO properties or those requiring major refurbishment.
10. Keep a record the growth in private landlords has resulted in crackdowns by the taxman – all the more reason for assiduous record-keeping. There are numerous book-keeping software packages for landlords, but many choose to develop their own systems. Detailed record-keeping is also essential to benefit from landlord tax breaks. A vast range of costs can be offset against profits for tax purposes, but they will need to be documented.
Not only does disciplined record-keeping help avoid problems with inventories and potential tenant disputes, it also helps ensure you meet changing regulations, including requirements from local authorites. Take specialist property financial and tax advice. We have links with local and national professionals to help you minimise your tax bill