An increasing number of people are investing in buy to let property. A few useful tips are outlined below which may help you on your way to becoming a successful investor.
Remember: location, location, location. Make sure that you consult local letting agents to determine the supply of and demand for rental properties in the area you are considering buying in, and find out the average rental yield of similar properties on the street. Go to arla.co.uk for a list of registered letting agents.
Check with your lender to see how much you can borrow. You will usually need a 15% deposit to qualify for a buy to let mortgage. Most lenders will also expect the monthly rental yield to cover 125% of the mortgage payments. However, some lenders take a more flexible approach, so it is best to consult a broker who can search the whole of the market for the best deal.
A fixed rate mortgage allows you to budget more effectively because it fixes your monthly payments at a set level. This means you can decide your rent with confidence, knowing exactly how much you will have to put towards your mortgage each month. A lifetime tracker, on the other hand, is great because it is relatively competitive for the term of the mortgage - so you can simply forget about it.
With an interest-only mortgage, you only pay back the interest every month and then pay back the capital debt when you come to sell the property. This means lower monthly repayments. Maintaining a debt on your property is also more efficient for tax purposes.
You'll have to pay solicitor's fees (approximately £1,000 for a £100,000 property), mortgage product fees, survey and valuation fees and Stamp Duty. You may also have to pay a letting agent a monthly fee to manage the property and cough up for service charges and ground rent if there is a lease. Remember, you are responsible for ensuring that the property complies with heath and safety standards.
Work out exactly how much your monthly mortgage repayments will be and whether the expected rental income will comfortably exceed this. Along with the letting agent's fee, consider the cost of maintaining the property. Look at how long you would be able to pay the mortgage if the property was unoccupied. Could you afford to decrease the rent to get tenants in?
A letting agent will find a tenant, collect the deposit and the rent and arrange the inventory and tenancy agreements. But they don't come cheap. Expect to be charged anything between 10% and 17.5% of the gross rental income you receive. A cheaper alternative might be to take out a maintenance contract with an emergency repairs firm.
You are responsible for insuring the structure of the property, which includes any permanent fixtures and fittings. It is vital you get the right cover, as many buildings insurance policies exclude buy to let.
You have to pay income tax on any rental income you receive, although you can deduct some expenses. You will also probably be liable for Capital Gains Tax when you sell. It is therefore wise to consult an accountant before you enter the market.