Buy-to-Let Everything you need to know

Whether you are a first-time investor or already own a buy-to-let property and just want to know more, here is our guide to successful property investment…

Research the market
The more knowledge you have and the more research you do, the better the chance of your investment paying off. Think carefully about the type of tenant that you are looking for, what type of property they will require and which area you are looking to buy in.

Purchasing a buy-to-let property is a big commitment which involves a large financial investment. Having said that, in recent years it has paid off very well for many people in terms of income and capital gain as house prices and the demand for rental properties continue to increase.


Choose the right area
Once you have decided on the type of people that you are aiming at, you can think about where they are going to want to live.

If you are looking for students, is the property close to a college or university? Are there local schools for families or good transport for commuters? These questions are very important for a successful buy-to-let property.

If you are planning to manage the property yourself, it would be practical to invest in a property close to where you live as you will know the potential market very well, plus you are close by if anything goes wrong.


Work out the finance
Before you start looking at properties, think about how much money you have to invest, the value of the property that you can afford and what kind of rent that is going to earn you.

Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments, and many now demand a minimum 25% deposit for rates considerably higher than residential mortgage deals.

Once you have the mortgage rate and likely rent sorted you need to factor in other costs to calculate whether your investment is going to be viable. Think about your maintenance costs, insurances and what happens if the property sits empty for a couple of months.


Find the best mortgage deal

Before you sit down with a mortgage broker, do some research on what sort of mortgage you are looking for. A good independent broker can then talk you through what deals are available and which one is right for you.

We work with an independent mortgage advisor Richard Mansfield, who is happy to sit down with you and have an initial chat to review your options; this could save you money or at the very least put your mind at ease. To arrange a chat, call Richard, on 01903 219 992, or email richard@somersfinancial.co.uk.

Many long-term existing buy-to-let investors are sitting comfortably on low mortgage rates, having seen standard variable rates fall as the base rate was slashed down to 0.5%.

New buy-to-let mortgage deals remain more expensive than residential deals and require a larger deposit, but if investors can ensure that their property meets the criteria of 75% loan-to-value and returns 125% of monthly mortgage payments then it can be a good long-term investment.


Who is your target tenant?

Remember that it won’t be you living in your investment property, so put yourself in the shoes of your future tenant.

If you are aiming at students, the property needs to be clean and comfortable but not luxurious. Young professionals will probably be seeking something a bit more modern and stylish whereas a family will be looking for space and storage.

As a letting agent, we can assist you in finding the right tenant for your property and can take a lot of the stress out of managing your property when it comes to the maintenance and monthly rent collection. It is also possible to take out an insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance.


Focus on your rental yield
The rental yield of a property is the annual rent received as a percentage of the purchase price. For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5% yield. If you are buying with a mortgage, you will need to factor this into your rental yield. Don’t forget to factor in tax, maintenance costs and other landlord expenses to calculate your net return.

An interest-only mortgage will give you a higher monthly return, but the amount borrowed will not be paid off over time, so you will need to ensure that you have a long-term plan to pay off the amount you borrowed.

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.


How involved can you be?
Once you have bought the property you will need to decide whether to manage the property yourself or employ an agent?

Agents will charge you a management fee but will deal with any problems and have a good network of contacts if things go wrong. This can be very reassuring if you lead a busy life and can’t always be available to deal with potential issues with your property or tenant.

The biggest headache for a landlord is the void period when you don’t have anyone in the property. When budgeting, you should factor in two months every year for your property to potentially be empty to allow for a buffer in mortgage repayments.

A good letting agent will have an extensive database of potential tenants looking for a property like yours, as well as access to leading online property portals to advertise your property on so it can be let to the right people quickly.

You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs. Try and build a good relationship with your tenant – if you look after them, they will look after you.

 

If you are considering investing in a buy-to-let property our lettings team would be more than happy to sit down to discuss and offer advice on your rental property requirements. 

Click here to find your local lettings office and either give us a call or pop in and see us.


Content accurate at time of publishing.

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