You have a recurring dream about being independently wealthy. The term "mailbox money" makes you start to salivate. A property mogul in the making, you envision having an empire of tenants sending you money each month for the privilege of living in your properties, while you traipse around the world savoring the good life. Sound like a fantasy? Well, okay, maybe so, but if you remember the three things we will discuss in this article you will be able to enter the buy to let game like a pro.
The first question you might have if you want to become a landlord is how much you will be able to borrow. This is determined by several factors, the most important of which is the rental value of the property. The income you derive from the rents should be roughly 130 to 150 percent of the property's mortgage payment. This amount should also give you a little cushion to budget for property maintenance and periods of vacancy with your properties when you just can't seem to find a suitable tenant. Additionally, some lenders will make their decision on how much to loan you based on a multiple of your salary, with this number usually being around three times what you currently make. This is not the only criteria, however, as it is viewed in light of the most important determinant of how much they will lend you with a buy to let mortgage, the projection of what a realistic return in terms of rent your property is likely to yield. Finally, you must also be aware that most lenders will also factor in a pre-existing debt that you are currently paying on. So if you are serious about maximizing how much property you can acquire, you must also be serious about keeping your personal debt, especially credit card debt, as low as possible.
The second thing that is important for you to know as you begin your journey to becoming the next real estate tycoon is to have a sound grasp of the interest rates and fees you will incur from securing your financing. Buy to let mortgage interest rates will be higher than traditional residential mortgages, because the lender perceives this to be a far greater risk of default, and want to protect themselves and their customers from the risk of default. Don't stress too much about this though, because you are likely to more than recoup this slightly higher expense in the tax benefits you receive.
The last thing you need to know to succeed in this area is how to be a savvy buyer. This is the most important piece of the puzzle to achieving success in the buy to let business. Since the residential real estate market peaked in late 2007 in the UK, and has subsequently declined, good deals abound right now. An absolutely essential component of success is having an array of local letting agents who will be able to tell you which areas of your town are easiest to consistently find tenants, as well as what the current leasing rates are likely to return to you each month. This will assist you greatly in snapping up undervalued properties in your town.
So there you have it. Your dream of travelling the world can be here sooner than you think, although it is important to understand that the term "soon" in the real estate business usually means at least 10-15 years. However, if you focus on getting a solid handle on how much you are likely to qualify to borrow through a buy to let mortgage, are savvy to what the current interest rate/fee environment is, and understand the crucial importance of selecting the right property, you will be lying on that beach in Ibiza before you know it.
