Top Ten Buy to Let Tips 1st Aug 2017
1) Do your research.
Is buy to let the right investment vehicle for you? If you have taken advice and want to proceed then it is essential that you research the market thoroughly. Consider how much you want to spend, what you want to get from your investment, what you want to buy, and where. Rental properties work well for many people in terms of income and capital gains but you must approach it fully equipped with all the facts, and a full knowledge of potential benefits and risks.
From the outset you need to have a clear idea of the purpose of your buy to let investment. Are you buying to achieve a monthly yield or longer term capital growth? Are you buying the property for your children once they are older or yourself in retirement? Your longer term aims will affect what you buy and where, so bear these in mind at the start of your investment journey.
2) Do the maths.
How much do you have to spend and how much will you achieve in rent? 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. Are there arrangement fees? Work out all costs and build in contingency for additional maintenance expenses and void periods. Is the investment going to work for you?
3) Capital verses yield.
While you may expect long-term house price rises, experts say invest for income not short-term capital growth. Capital growth, or capital appreciation is the increase in the value of your property over time. Rental income is the rent paid to you monthly by the tenant. If you divide the annual rent into the purchase price of the property and multiply by 100, this gives you your yield or annual return. The yield is a hugely important consideration before investing, as it will help you decide whether the property is worth investing in. However you should also consider the potential for capital growth, or indeed depreciation. This may be dependent on factors such as property location and type.
4) See a mortgage adviser.
Mortgage advisers can work with you to get you the best buy to let mortgage. They can talk you through available deals and help you weigh up which one is right for you and whether to fix or track. Most buy-to-let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time. This is tax efficient, as you can offset mortgage payments against your tax bill. If you can get a rental return substantially over the mortgage payments, then once you have built up a good emergency fund, you can start saving or investing any extra cash. Once mortgage, costs and tax are considered, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments, or to pay off the mortgage at the end of its term. This means you will have benefited from the income from rent, paid off the mortgage and hold the property's full capital value.
The Key Place can recommend mortgage advisers - contact us now if you would like further information.
5) Consider where to invest.
Making a decision on whether yield or capital growth is more important to you will help narrow down your choice of areas in which to invest. Think about investing in areas that may not be familiar. Are you considering a student let, a family let or a professional let? You need to make sure, for example, if you plan to let to students, that the property is near universities or colleges. Ensure there are good local amenities and transport links.
6) Who will your tenants be?
You need to provide quality accommodation in a good location. However tenant type may dictate some decisions. For example if you are going for a student let, it is likely you will need to furnish the property. Professionals or families may have their own furniture. 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. And these tenants will stay for longer, which is great news for a landlord.
7) Consider a ‘doer upper`.
It is worth looking at properties that need improvement as a way of boosting the value of your investment. Tired properties or those in need of renovation can be negotiated hard on to get at a better price and then spruced up to add value. This is one way to see a solid and swift return on capital invested. If you can add some value to a home straight away then it gives you a greater margin of safety on your investment. However, remember to ensure that the price is low enough to cover refurbishment and some profit and that you allow for the inevitable over-run on costs. A good rule to follow is the property developers' rough calculation, whereby you want the final value of a refurbished property to be at least the purchase price, plus cost of work, plus 20%.
8) Is the property ready for renting?
It is essential that you prepare your property for letting in order to attract the best tenants and achieve the best rent. If the rental property down the road looks a lot better than yours, then rest assured you will lose out. Today’s tenants want clean neutral spaces with quality fixtures and fittings. Ensure the property is spotless. If work needs to be done then factor this into your budget before you buy, and bear in mind timescales for completion as you want to get the property rented as quickly as possible. Ensure you have a detailed inventory documenting the condition of the property at the start of the tenancy.
9) Understand the risks of buy-to-let as well as the benefits.
Before you make any investment you should always investigate the negative aspects as well as the positive. Consider fluctuating property prices and how this might affect your investment. Mortgage rates may change, what happens if rates rise? Consider too the standard variable rate you may move to after a fixed rate period. What will happen if you can't remortgage? Even in popular areas properties can sit empty. One rule of thumb many investors apply is to factor in the property sitting empty for two months of the year - this gives a substantial buffer. Homes often need repairing and things can go wrong. Ensure you have enough in the bank to cover any necessary repairs, along with general maintenance.
10) How hands-on do you want to be?
Do you have the experience or the time to manage the property yourself? You have to be available all day, every day, answering queries from your tenants, organising trades to do repairs, advertising your property and selecting the best tenants. If this is not for you then consider hiring a letting agent for a stress-free approach to help you succeed in creating financial success.
The Key Place has in depth knowledge of the local markets in which we operate which can help inform your buy to let decisions. We also offer a full buy to let service. We can source high yield properties, help find the best mortgage, complete the acquisition and then manage your buy to let investment. Contact us now for further information.