The buy to let market has been popular in UK since 1990s. This sector
has been going through a period of unparalleled growth. In recent years
an amplified number of investors in UK have invested in buy to let
property investment. But still there is deficit of potential renters in
some areas around UK. So there is a need to do some research work to
become a buy to let investor.
A buy to let investment is buying a property in order to rent out to
tenants. It can be a medium to long term investment. It is different
from owning your own home. It is about becoming a landlord and running a
small business with legal responsibilities.
In order to buy a
residential property you can go for a buy to let mortgage deal or can
use your own cash. If you are planning to invest in buy to let property
in order to rent out to tenants there are some essential things you may
consider.
Study the market:
Before
investing in a buy to let property, you should thoroughly investigate
the market. You should be familiar with all the risks and return
involved. After all it’s a medium to long term investment. If you are
not willing to tie up your funds for a considerable period of time in a
tangible investment then a buy to let investment may not be the right
option for you.
If housing markets falls, there are chances that
the value of the property may fall and if there is a need to sell the
property, the sale price may not cover the whole mortgage. In that case
you will have to make up the difference. Ups and down in the rent you
charge depending upon market trends, major repairs and finding the right
tenants for your property are some other factors to consider.
Select the appropriate area:
Choose the best areas to rent in and select the right type of property
to rent out in that area. According to the results of UKs largest
letting agency the highest buy to let yield in July this year were
achieved in Wales at 6.6%, Midlands at 6.5% and North at 6.4%. Choosing
the right area also means the place where your potential tenants will
want to live. Make sure that the area should have special appeal for
your desired tenants for plenty of reasons, like schools, transportation
links, amenities etc.
Do the calculations:
Buy to let is a big commitment. Before taking this plunge just make
sure you have done all the calculations regarding the value of property,
cost of buying, expected rental yields and the mortgage payment (if
it’s a mortgage). Ideally buy to let investors want rent to cover
120-130% of the mortgage repayments with larger deposits of around 25%.
Also keep in mind that if you need to sell the property on loss, the
sale price may not cover the cost you owe on mortgage. You will have to
bear the difference. And if your tenant leave and there is no rental
income, still you need to make the mortgage repayments.
Explore the best mortgage deals:
Shop around and look at all the possible mortgage deals available in
the town. Don’t just go for the one which your bank offers. There is a
list of online companies that offer list of best buy to let deals on
their web sites. You can also get the services of a specialized broker
in this regard or may visit various local estate agents. Local auctions
note and weekly paper advertisement may also be helpful.
Focus on the potential tenant:
Who are your target tenants and what do they want. E.g. if they are
students then their demand will be entirely different from families or
single person or from young professionals because they require purpose
build student accommodation. Once you have decided your target market it
will help you in what type of property you should invest exactly. Also
remember that good tenants are those who stay for a considerable period
of time and don’t spoil your property but they are critical to find.
Debate on price:
As a buy to let investor you are in a position to negotiate on price of
the property. In this case you are not the part of onward chain so
there is a lesser risk of a sale following through. Once you find the
right property, start with a low offer and don’t pay too much for it.
Consider the risks:
Think about the negative aspects and risks involved. What if the house
prices fall, the value of your property may likely to fall as well and
you may not be in a position to sell at a profit. Also if you can’t find
tenants your property will be vacant for long period of time or if you
can’t charge the rental yields you expected, you may not be able to
cover your mortgage repayments.
Tax and charges:
In UK when you purchase a property and the price exceeds a certain
limit you are required to Stamp Duty Land Tax. Also you will be paying
income tax on rental income. In buy to let mortgage you will have to
bear the cost of buying which may include solicitors fee, Stamp Duty
Land Tax and Survey fee etc. also running and maintenance cost is
associated with rental home.
How will you get along:
Once you have owned a buy to let property, now the question is will you
deal everything alone or you will hire an agent to manage and let out
the property. Agent will charge a fee for this but he will take care of
repairs, maintenance and advertising. He will handle tenants on your
behalf.
The above essential buy to let tips will guide you to
successful property investment. To be a part of buy to let hype which is
going on currently in UK it is important to play by the rules. Before
indulging yourself in a buy to let investment, contact your financial
advisor or ourselves for an assessment advice.