Buy To Let Tips
BTL Property Investment
Is Buy To Let Still A Good Investment?
With letting agents reporting a shortage of rental property and waiting lists of prospective tenants, buy to let seems like a tempting place to put your money.
However, despite lower property prices and rising rents – making buy to let more profitable – buy to let mortgages are still relatively expensive compared to residential deals.
Like any investment, buy-to-let comes with no guarantees. So, if you feel more confidence in bricks and mortar than stocks and shares, you’ll have a more relaxed time of it if you stick to some tried and tested methods of buy to let investing.
1. Do The Sums Add Up?
Before you start looking at properties, establish what price range you’re looking at. There are 3 main things that influence this:
- The amount of cash you have to invest
- The amount of mortgage you can get
- The rental income
Most buy to let lenders now expect 25% deposit with interest rates considerably more than residential rates. But having 25% deposit isn’t enough to qualify for the mortgage. The rental income has to be sufficient to pay the monthly interest only mortgage payment.
Typically, lenders want rent to cover 125% of the monthly interest-only mortgage payment ... although this can vary from lender to lender.
So assuming, you have £25,000 to invest, you could potentially borrow £75,000 and buy a property for £100,000, as long as the rental income is 125% of the mortgage payment.
In addition, your personal finances and employment situation will influence your ability to get a buy to let mortgage.
At Fast-Track Property we recommend that you speak to a buy to let mortgage broker before starting your buy to let property search.
Don’t just walk into your bank and building society and ask for a mortgage. They can only sell their own products – usually without guaranteed advice. You’re likely to find a much more suitable deal if you use a specialist buy to let mortgage broker with access to the whole of the mortgage market.
Find the best Mortgage for you
2. Focus On Income
It’s tempting to believe the hype about becoming a buy-to-let millionaire with a big portfolio overnight. However, this is usually done in times of quick price rises and benefitting from short-term capital growth.
Currently we’re not in that cycle of the market. Since 1956 house prices have doubled on average every 10 years or so and it’s likely we’ll see house prices rise again over the next 10 years.
So it makes sense to invest for income – that’s enough income to comfortably cover the costs of the property, so you can keep hold of it for long-term capital growth.
3. Know Your Costs
It's unlikely that you'll buy your BTL property for cash which means you'll have the cost of a mortgage plus other running costs. There's also the cost of agent's fees, insurance, maintenance, etc.
It's wise to also consider what would happen if the property is empty for a month or two? Most experienced landlords have an emergency fund with money set aside to cover extra costs. You could take out an insurance policy against your tenant failing to pay the rent. This is relatively inexpensive and could be well worth it if the worst happens.
Ideally, once mortgage, costs and tax are covered, you can allow the rent to build up over time and then possibly use it for further investments ... or even pay off the mortgage at the end of its term. That way, you then own the property investment outright and it will hopefully be worth considerably more than when you bought it. A great retirement pot!
4 . Invest In A Good Location
A good location for buy to let doesn't mean the cheapest or most expensive location - it means a location where people want to live.
This can be for a number of reasons depending on your target tenant. For example, access to good transport, road links, schools, shops. Students want to be close to universities and colleges. Young professionals want access to transport, work and social activities. Families need access to good schools.
5. Look Outside Your Area
Many buy-to-let investors look for properties near where they live. But your area or town may not be the best investment. The advantage of a property close by is being able to keep an eye on it, but if you intend to use a letting agent anyway they do that for you.
It's important to look at the investment from an income perspective. Buying outside of your area, may well by the better solution. Look at towns with good transport links, areas that are popular with families, areas close to where people work or have a large university or hospital.
6. Think About Your Tenant's Needs
A common mistake amongst new buy to let investors is to want to buy a property they want to live in themselves. The better way is to understand your target tenant and invest in what they are likely to want … and afford.
Young professionals want modern and stylish. For students, it needs to have basic furniture with a desk, and be comfortable, but not luxurious. Families usually have their own furniture so need a blank canvas.
For most tenants, modern property with neutral décor is appealing.
7. Consider How Hands-on You Want To Be
A key factor to consider is: Will you rent the investment property out yourself or get an agent to manage it for you. Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if needed.
You could make more money by renting the property out yourself, but be prepared to spend time on weekends and evenings on viewings, advertising, tenant queries, collecting the rent and repairs, etc. Generally, the cost of an agent is well worth it for most investors.
8. Find A Good Deal
As a buy-to-let investor you should aim to buy below value and find property bargains when possible.
Measure the value of the property against yield ie the annual rental income divided by the purchase price.
If an investment property is priced at £100,000 and the rental income if £5,000 per annum, the yield is 5%. Yield for properties in London may be as low as 5% or less. outside of London, if the property is priced well, the yield will be 7% and above in today's market.
At Fast-Track we source properties that are discounted off today's prices. We look for properties with a good yield and in some cases they are already even tenanted.
Sign up for our BTL below value property investment deals.
9. Know The Pitfalls
If you're new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits?
Before you invest in property, make sure you investigate the negative aspects as well as the positive.
One of the key concerns is having your property empty. However, if you buy in a location with a rental demand, set the rent in line with the market and keep the property in good condition, this should not happen.
It's a good idea to factor in the property sitting empty for two months of the year, just in case. Make sure you have an emergency fund as things can go wrong such as the boiler needing to be replaced.
If you have friends who are involved in buy to let property, ask them about their experiences. At Fast-Track Property you benefit from a complimentary discussion with experienced property investors, who can give you a taste of what is actually involved in being a property investor.
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BMV & Buy To Let Property Investment London, UK, International
