Everything You Need to Know about 'Buy to Let'
Buy to Let: a corner of property investment that is a truly viable way to bring in a regular income, particularly if you can raise a hefty initial deposit. There’s no doubt that passive income is an attractive concept but, as with any investment, you need to know the full picture before diving in.
The reality is, the nature of Buy to Let means you’ll be a Landlord or Lady – and that means input and work, not just a stream of income without moving a muscle. Still throwing your hat in the ring? If you’re game for putting a bit of work in, Buy to Let can be a profitable and exciting investment. So read on to get to grips with it.
Who Can Get a Buy to Let Mortgage?
- You already own your own home – you’ll struggle to find a mortgage if you don’t already have your own place
- You have a strong credit record – you can’t be overstretched on other borrowings or have unreasonable outstanding debt
- You earn 25k+ a year – you’ll find it tough to get approved on a mortgage with a salary lower than this
- You’re under a certain age – lenders will require you to be 70 to 75 or under when your mortgage period ends
Research the Market
If you’re new to Buy to Let, you need to get to grips with how the market works. Investing in Buy to Let means your money may well get tied up in a property that could fall in value. Stay abreast of how the market is working, looking at forecasting and predictions. How do property prices stack up against rents in the area? – yield is key to a good investment. What are Buy to Let mortgage rates and landlord best practices?
Choose a Promising Area
Now, this doesn’t necessarily mean more affluent or cheaper. Promising means one simple thing for a Buy to Let: are people going to want to live there?
- Where in your town has a special appeal?
- Is it suitable for commuters?
- Are you in the catchment area for decent schools?
- Does the property have good transport links?
This article by This is Money lets you in on the top 10 things to consider when buying a Buy to Let property.
Do the Maths
Get back to basics and sit down with a pen, paper and calculator. Yes, it may seem ancient when you’ve got all these online tools, but actually, it’s going to take a fair bit of toing and froing. It’s very simple; if you fail to make the right calculations you’re going to lose out.
Commonly, Buy to Let lenders will want rent to cover at least 25-30% of the mortgage repayments, with a deposit in the realm of 25%. Once you have a mortgage rate and repayment costs worked out, you can afford to analyse with a truly clinical eye. Is it affordable? Don’t forget to factor in the ongoing maintenance costs! It’s the reality of being a Landlord and/or the costs of having an expert letting agent to help you get the best return, while taking care of the day-to-day management for you.
‘This is Money’ expands on the financials of owning a Buy to Let property in this value-packed article.
You’ve got to make sure you get the full picture when it comes to getting a Buy to Let mortgage. There are a ton of products on the market and it’s crucial when it comes to making sure you get a good return on investment.
They tend to be more expensive than residential loans because they pose a bigger risk to the lender, but there are still competitive deals out there. Bear in mind that Buy to Let deals are typically ‘interest only’, so you’ll need to remember that once the mortgage term is up you’ll have to pay off the remainder of the loan in full. If you weren’t intending on selling the property this could put a fly in the ointment.
Consider Your Target Tenant
A common mistake Buy to Letters make is to imagine what sort of property they would like to live in, when actually, you should be putting yourself in your tenants’ shoes.
But who exactly is your tenant?
Students, families, young professionals? Each group will have a different wish-list for their ideal place to live. The key to success is deciding on your target, then making the house attractive for them to live in. Families will most likely want a garden, for example.
Know the Pitfalls
Lastly, know the risks! If property prices dip are you going to be able to hold onto your investment? Can you pick up the slack if you can’t find a tenant? A standard rule of thumb is to have a financial buffer for a property sitting empty two months of the year. That way you’ve got a small amount of leeway if you struggle. ‘Buy to Let’ is a big commitment that needs patience, understanding and planning – but it’s potentially a very decent money-maker if you can follow these tips.
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