Buying property to let out as an investment, and a source of income, may not be as hot a deal as it once was (remember the heady days of the early Naughties when everyone was at it?!), but for those lucky enough to have the money to raise a big deposit, it is still an attractive investment option.
But, like so many financial opportunities today, it isn’t for the faint hearted and it is even more prudent these days to be aware of, and avoid at all costs, the pitfalls!
Here are some tips for consideration if you are thinking about “buy-to-let”, not everything is covered here obviously so it is imperative to do your research thoroughly and get sound advice where you can, but we hope this helps a little.
Research Your Potential Market
If you are new to buy-to-let, then you really need to understand the market you are thinking of entering. Do you know the risks, as well as the benefits? Make sure that the market is sustainable in the area you are considering, is there a good student population for example.
If you know someone who has entered the buy-to-let market, ask them about their experiences. Speak to local agents about the rental market and prices etc. and generally try and get a feel on the availability of properties in your area, and the rental prices they attract.
Remember – donb t buy a property that you like, buy a property that the kind of tenant you want to attract will actually want to rent.
Consider Property outside Your Neighbourhood
Most buy-to-let investors look for properties near where they live. But your town or village may not be the best location for an investment. The advantage of a property close by is being able to keep an eye on it, but if you will be employing an agent anyway they should do that for you.
Cast your net wider and look at towns with good commuting links that are popular with families or have a sizeable university/college population.
Do Your Sums, and Check the Figures, Again and Again!
There are many things to consider when you work out the finances before you look at buy-to-let, and some costs are not always obvious. Apart from repaying the mortgage you take out to purchase, and possibly renovate the property, consider some other costs.
You will need to make sure you can cover all the costs of maintaining the property. Buying somewhere run-down or with a big garden will increase those maintenance costs.
Also don’t forget to factor in any letting agents fees, they can charge 15-20% of the rental income to manage your rental properties. Using a letting agent can be a great way to manage your investment and a letting agent can make your life much easier and increase the chances of a successful investment. They will find good quality tenants, take care of credit checks and references, and cover your back legally; ensuring you have a watertight contract in place as well as helping you wade through the red tape.
You will have to pay tax on gains in the value of the property when you sell it, but expenses like agent fees and interest costs can be offset against rental income.
Buy-to-let probably isnb t a great short-term investment, you may have to be patient and wait a number of years before you start to see returns. But, done correctly and with sound groundwork, it can provide an excellent longer term investment.
Investigate the Buy to Let Mortgage Market
This may seem painfully obvious, but the mortgage interest rate you get is vital. Shop around, get plenty of quotes and make sure you are getting a competitive rate with a reputable lender. Getting this bit right could make the difference between a successful investment and a not so successful one!
Finally, have an exit strategy. Know what you want from your investment and how long you want to have your money tied up.
Are you planning to sell up and invest any profit into a business venture, or do you expect your buy-to-let investment to act as your pension? It’s amazing how many landlords do not have a firm plan of action.
All points to consider carefully, but buy to let can be a very profitable and fun way to invest, so go into it with your eyes wide open and good luck!!
If you intend to sell your property do you fully understand your Capital Gains Tax liability? Or if you plan to live off the rental income is your mortgage on a repayment basis? If not, do you know how you will repay the debt at the end of your term?