Becoming a Landlord
More and more people are now living alone, which means more people are renting accommodation. Busy careers and the desire to travel extensively also mean that the average age of first-time buyers is increasing. As a result a wide range of mortgages are now available for people looking to invest in property to let. Buy-to-let mortgages offer home owners the opportunity to purchase additional properties which they can use to rent out to tenants. This additional investment can be used as an extra income or as a future asset. So is buy-to-let right for you? Take a look at this brief guide and find out how you can get the best return on your buy-to-let investment.
Why buy to let?
Over time, property is a sound bet for a good return on investment. The home you purchased ten years ago is likely to have risen in value way above the normal rate of inflation and in some cases prices have doubled over that period!
Investing in property therefore, can be a worthwhile investment, and if you rent out the property you will be able to keep up the repayments on your additional mortgage.
With more people renting rather than buying you shouldn't have much trouble finding tenants, but it?s worth checking beforehand that you're not purchasing a property in an area that already has more supply than demand.
It?s also easier now to evict troublesome tenants. The 1988 Housing Act has given landlords more power to evict repeat offenders.
Investment or Income?
Essentially, purchasing an additional property is an investment, which means you must decide whether you want to help that investment to grow or use it as additional income. If growth is your primary goal then city centre locations can offer high levels of return. However, as the majority of rental property is concentrated in city centres, competition for tenants is usually higher.
If you're looking to use your rental property as a vehicle for additional income, then consider suburban areas where properties will generally be cheaper and the rent lower, so relative returns are likely to be greater over the long term.
The Association of Residential Letting Agents (ARLA) estimates that, as a landlord, you should be able to claim gross rent equivalent to between 130% and 150% of the property's mortgage repayments (interest only).
Once you have found your property, the next step is to find a letting agent to help you draw up the necessary documentation, find suitable tenants and collect rent, that is unless you intend to become a landlord on a full-time basis, and to develop a portfolio of properties to use them as your main income.
Letting agents normally charge around 10%-15% of the agreed rent, but this can vary subject to the work you ask them to do for you. It is advisable to budget for this when you make your initial purchase and set your rent figures.
You should find a letting agent who is a member of ARLA. which means that they must join a bonding scheme which will protect not only your rent but also your tenants' deposits, should the agent go bust or misappropriate these funds.
As a new landlord your daily responsibilities will largely depend on the level of responsibility and work you agree with the letting agents. However, as the owner, you'll be responsible for the property?s upkeep, as well as building and contents insurance.
You must also make sure that any gas or electrical equipment passes safety checks and complies with relevant regulations. Remember too, that maintenance costs, such as cleaning, gardening and your agent's commission can be offset against tax.
Risk V Rewards
Whilst there is no doubt that buying a property to let can be a worthwhile investment option, it is important to remember that buy-to-let also has an element of risk.
You need to make sure that you keep up the mortgage payments on the property. The rental market may be buoyant, but you must still consider the possibility that at times you may have no tenants, but you'll still need to pay your mortgage.
You also need to consider the condition of your property. It may well be cheap to buy a place in a run-down area that needs renovation, but it could be expensive to refurbish. In addition, when you look to sell the property in the future, you may not get the return on investment you expected.
As with most investments, it is prudent to look long-term to get the most out of a buy-to-let property. Housing markets constantly fluctuate with the changing economy, but the trend has often been growth. If you seek professional advice and make the right choices, your buy-to-let now should provide strong returns in the future.
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