10 Tips To Buy To Let
Last updated 26/06/2018
Buying a property with the intention of letting it out to tenants to generate a profit from rental income is one of the most popular forms of property investment.
Read on for our 10 tips to Buy To Let (BTL)...
1. Market research
First on our top 10 tips to Buy To Let is to look into the market. Is now the right time for you to invest your money. i.e. Is there a strong demand outweighing the supply in the private rented or housing association sectors?
It is important that you weigh up all factors before you buy to let. This will save you time, money and ultimately stress in the long run.
Speak to a lettings agent about what ‘is’ and what ‘isn’t’ in demand. Discuss the expected rent you can expect, what the neighbourhood is like, what the average price of property is in the area.
Do not go for the cheapest or most expensive areas. This is where competition thrives. You need to keep your eyes open on upcoming and promising rental areas.
It may also be worth considering looking slightly further afield, as long as you can easily access and commute to the area in question. This is a hands on occupation where many things can go wrong. You need to be ready to act and be responsive in order to minimise any mistakes or costly miscalculations.
3. Target your tenant
Finding your target tenant early on is our next top tip to Buy To Let. Students, young families and young working professionals are all popular renters. In general, they are reliable payers too.
As an example, large houses close to a University can be easily converted into an HMO (housing with multiple occupancy). This increases the overall rental income for the property as there are more occupancies fulfilled, therefore more money coming in.
Don’t forget to do your checks on your potential tenants. References and credit checks are essential in this game. You can’t take someone’s word for it that they’ve had a secure job for the last 10 years with no gaps in their income, or that they have a squeaky clean credit rating.
These checks are indicative of the lifestyle your given tenant may be used to living and likely to repeat while living in your property. Worst case scenario, you’re going to have headache of evicting a tenant when they can’t pay their rent - and this comes at great cost to who? You, the landlord!
4. Do your calculations properly
Knowing your sums is one of our 10 tips to Buy To Let. Start out by making a budget, what can you possibly afford? Can you afford the deposit which is normally around 25% with a buy to let mortgage? What rent is the property likely to bring in? You're aiming for the monthly rent to cover 125% of the mortgage. You also need to allow room in the budget for maintenance costs (typically 10% of the gross rent for maintenance, arrears, void periods etc).
5. Shop until you drop
Next on our top 10 tips to Buy To Let is do not just take the first Buy To Let mortgage that is offered to you. Shop around banks, building societies and explore over avenues. You will need to get your finances in order as these Buy To Let mortgages are offered depending on your circumstance. They will want a big deposit, and healthy rent to mortgage payment cover.
6. Risky business
Knowing the risks of the investment is next on our 10 tips to Buy To Let. If the market dips again, will your investment hold up? What if something in the property goes wrong or your unable to rent it out? You could be faced with a property that sits empty and one you cannot sell on.
7. Rental yield
Our next 10 tips to Buy To Let is to get your head around your rental yield. This is the annual rent received as a % of the purchase price. This should be at the heart of your Buy To Let return.
In order to work out the annual return on your investment you subtract your yearly mortgage cost from the annual rent and work this out as a % of the deposit you have put down originally.
8. Know your additional costs
There are lots of things that you may not have initially first taken into account, so knowing your additional costs is on our 10 tips for Buy To Let. Go in armed with knowledge of these things so you didn’t get any nasty surprises!
Could you afford to replace a boiler if it went wrong or redecorate a room if there is a leak? Could you afford if the tenant goes into rent arrears? You will have a variety of insurances to consider as well.
9. Hands on
Our subsequent tip for Buy To Let is to decide how hands on you want to be as a landlord. Or will you invest in a letting agency to oversee the property for you?
If you decide to take this route, there will of course be fees involved. You will also need Landlord Insurance. However, the positives may just outweigh these down sides. You can rest in the knowledge that your property is being looked after at the highest standards according to ARLA and other regulatory boards for landlords & tenants.
Our final tip on our 10 tips to Buy To Let is to know your tax. Did you know that there is now a 3% stamp duty tax and mortgage interest will soon not be able to be sent against rental income? These will all need to be researched and factored into on your buy to let investment.
Read our 'blog' for further related articles.