Monday, May 18, 2020

Should You Invest in A Buy-To-Let?

With legislation and tax increasing seemingly year-on-year for landlords, you might be wondering whether buy-to-let investments are still a good idea. It’s certainly not as simple as it used to be and it’s certainly more difficult to make a profit these days on renting a property. Many people are unsure whether to enter the market and are questioning whether it’s worth their time and money…

Buy-to-let investments can definitely be a success, however. Renting is becoming the new normal with many people unable to get on the housing ladder due to high house prices. The market for renters is undeniably out there. So, if you’re thinking of investing in a buy-to-let, what things should you consider to ensure that you have the best chance of success?

Know the risks
Be aware of the whole picture when making a big step such as this. Buy-to-lets of course come with risks…

  • The amount of rent you can charge varies on a number of different things, one being wider market trends outside of your control. Rents are never guaranteed! You will want to at least be able to charge enough rent to cover the mortgage repayments.
  • There is always a risk of not being able to find tenants. This is not a big risk, as the rental market is large but it’s always worth considering. 
  • Bad tenants. You should always conduct thorough screening and background checks before taking on a tenant, but by trusting someone else to look after your property you will always run the risk of damage, illegal activity or taking on a tenant with financial issues. Make sure you compare landlord insurance policies to get the best cover.
  •  If house prices fall, the value of your property is likely to fall too and you might find yourself in a position where you have to sell up and the sale price might not cover your whole mortgage. More often than not however, house prices will rise and you might be able to sell your property for a profit!

Search around for the best mortgage
Finding a buy-to-let is an exciting process. Getting a mortgage is not so exciting… but it’s an important step and one you should take your time on instead of rushing through. Don’t just walk into your bank or building society and ask for a mortgage. Mortgage brokers or advisors often have access to way more deals that might suit you better, and will be able to offer invaluable advice on what’s right for you, such as whether to fix or track rates.

Pick the right location
Certain rental properties will do better in some places than others. For instance, a flat will be most desirable in a built up area or within a city, a family home in rural villages or located near to schools and small new builds ideal for couples in towns. Some of the locations with the highest buy-to-let yields (annual rental income minus mortgage costs divided by cost of property) are places with high student populations. Students will always need somewhere to live and generally don’t buy property. Could this be a market you tap into?

Rented property also tends to do well in affluent and desirable areas that people possibly can’t afford to buy a house in, but could afford to rent. If you can afford to put your money in these areas, such as London, Oxford and the Cotswolds, then it’s well worth doing!

Decide on your landlord approach
Landlords come in all shapes and sizes and you should decide what kind of landlord you are going to be. Firstly, do you want to enlist the help of a letting agent? It’s an additional cost as they will charge you a management fee, but a letting agent will deal with any problems within your tenancy and have a good network of tradesmen to call in if any repairs or maintenance need undertaking. A letting agent may be a good security blanket for a new landlord to fall back on.

You will make more money going solo however, as you’ll avoid the letting agent fees - but it will of course be a bigger undertaking. You will be responsible for viewings, finding new tenants, screening and sorting out repairs and maintenance.

This might be perfect for many people who like the idea of being in control and making this project their own. You will be your tenants point of call and be responsible for looking after them.

Treat your tenants well and they will in turn look after you and your investment.

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