With a high divorce rate, mobile workforce and growing student numbers there is plenty of demand for rental accommodation. Whilst we can't cover all topics in this article, the tips below should be used as a sound platform upon which you can make your decisions.
1. Choose the right property
No surprises with this one. The area in which you buy should be well suited to letting. You also need to decide your target tenant market (young professionals, students etc). Consult local estate agents and letting agents to determine supply and demand.
2. Get the right mortgage
There are hundreds of investment property mortgages available. Most lenders will allow you to borrow up to 85% of the property value and the rent you receive should cover 125% of the monthly mortgage payment. A good mortgage broker will help you with this.
3. Consider the 'hidden costs'
You'll have many fees to pay, both up front and ongoing. There's the estate agent's fee, buildings insurance, mortgage arrangement fees, legal fees, stamp duty, and possibly service charges and ground rent.
4. Beware of ongoing costs
You must repair the property and replace fixtures and fittings, ensuring that the work meets the relevant health and safety standards. You also need to comply with fire regulations. See the 'Furniture & Furnishings Fire & Safety Regulations' available on the Dept of Trade and Industry's website http://www.dti.gov.uk
5. Choose a letting agent
If you decide to use one they will find the tenants (and do the reference checks), collect the deposit/rent and arrange inventory and tenancy agreements. They usually charge between 10-17.5% of the gross rental income.
6. Be insured
Many buildings insurance policies do not cover buy-to-let so check the small print of your policy. You can also insure your furnishings etc. The tenant will normally be responsible for insuring their own contents.
7. Be prepared for the tax man
You'll pay income tax on any rent you receive, although you can deduct certain expenses, including mortgage interest payments. There may also be capital gains tax to pay when you sell the property.
8. See buy to let as long term
It's rare to make a profit in the short term, so it makes sense to take a 5 to 10 year view.
The Financial Tips Bottom Line:
Whilst investing in property takes effort and a great deal of patience, the rewards over the long term can be impressive. You should research as much as you can, however not to the point where you have 'analysis paralysis' and subsequently take no action. In summary, do your research and you'll be well on your way to either increasing your portfolio or starting out in property investment!
NOTE: Buy to Let mortgages are not regulated by the Financial Services Authority.
Copyright (c) 2006 Ray Prince
When purchasing a buy to let property as an investment, the main consideration should be where to invest. Bargain properties come up in all sorts of towns and cities, depending on their state and proximity to amenities. Purchasing a buy to let property because it is cheap does not necessarily herald a wise investment.
Always, always research the area you are interested in. Look into the local amenities. Are there good, local schools and colleges that carry good reputations? Particularly if you are looking at a buy to let property that is suitable for a family, you need to consider the local area from the perspective of children.
Open areas of parkland or greenery are always a bonus for families as well as the good schools. Ensure there are suitable choices for doctors and dentists, maybe if you think you would let to working parents, check out childcare facilities. These are all time consuming searches but make a worthwhile advertising tool for your buy to let property.
It won't be too difficult to search the area around your buy to let property for signs of re-generation. Run down areas will offer up cheap houses but check out planning permission listings. Building sites are never pretty but it will show that money is being ploughed into the area, giving hints about what is expected for the areas future.
Culture issues are an important attraction if you are targeting a particular market. Look for theatres, cinemas, clubs, groups, exhibition centres and the like. All these will make your buy to let property an attractive option.
Decent shopping centres are essential for all groups of people. Choice is something that most people are demanding these days and small local shops as well as large, glossy department stores and shopping centres are the order of the day.
For the smaller buy to let property where you might target the single person, look for homes that are just outside of a large town but on a commuter line. The rents will be more affordable than in town so more attractive to workers.
When carrying out your research on the local area, don't omit to check out average local rents on similar size properties. You need to be competitive and not overprice yourself or appear too cheap, as this will attract the wrong type of tenant.
When considering the rent you intend to charge, take into account ALL of your outgoings. Not just mortgage rates but allowances for fluctuations in mortgage rates. Also consider any taxes and insurances on the property.
It is essential to make sure there are enough funds to not only get the property into a letable state but to uphold the maintenance that you will be liable for. To reduce any risk of the property falling into bad disrepair, it is a good idea to employ an agent to look after the property, particularly if you are not living near enough to keep a regular check on it.
It is always a good idea to leave yourself with a contingency fund. Set aside enough money for the possibility of the property sitting empty for two months of the year. This will cover any blips in rent and give you some breathing space.
Buy to let properties can be a good investment but not for the first timer without advice. Always seek advice from seasoned landlords and research and know your area and target tenants.
Both Ray Prince & Catherine Harvey are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Ray Prince has sinced written about articles on various topics from Finances, Babies and Property Guide. Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Click here fo. Ray Prince's top article generates over 33100 views. to your Favourites.
Catherine Harvey has sinced written about articles on various topics from Culture and Society, Home and Wedding Gowns. Property expert Catherine Harvey looks at the market as an investment. To find out more please visit. Catherine Harvey's top article generates over 1500000 views. to your Favourites.