Top Tips: Buy-To-Let

Buying to let can be a profitable venture, but there is plenty to consider before you do so – we give you the lowdown.

A buy-to-let property is purchased with the sole intention of being rented to tenants, rather than occupied by the owner. By ensuring that monthly rental payments are greater than the instalments due on the mortgage, landlords can make a significant income from owning such a property.

However, like any investment, a buy-to-let property doesn’t come without its risks. A landlord could be hit by rising interest costs, vulnerable to changes in legislation, stuck with terrible tenants or unable to sell the house in a difficult market.

Here are our top tips for what to do before you buy.

 

Do your research

If you’re new to the buy-to-let market, do you know the risks associated with what you’re getting yourself into, as well as the benefits?

Property investment has paid off handsomely for many people, both in terms of income and capital gains, but it is essential that you go into it with your eyes wide open, acknowledging the potential advantages and disadvantages.

The more you understand, and the more research you’re able to do, the more chance you’ll have of your investment paying off in the long run.

 

Choose a promising area

Part of your research will be to decide where you’re going to make your buy-to-let purchase.

If you’re new to the process, choosing a property in your local area could be your best bet. You’ll already know the neighbourhood, and if anything does go wrong you’ll have peace of mind knowing that you’re close by.

Once you’ve gained more experience, buying further afield in an area that you know is appealing to tenants could help improve your yield.

 

Can you afford it?

Another key question to ask yourself is, can you afford the investment?

Do your calculations correctly and double check them. Now’s the time to consider taking some financial advice to ensure you understand the situation.

What will happen if a tenant’s window is smashed? That becomes your responsibility to fix, and your expense.

There’s also the possibility of the property sitting empty for a month or two, or even of a tenant not paying their rent on time. These are all factors to consider before going ahead with your purchase.

 

Get the right mortgage

If you don’t have the funds to buy your property outright, you’ll need to apply for a mortgage. However, this will need to be a specific buy-to-let product.

There are several differences between a buy-to-let and a residential mortgage, beginning with the way your suitability is calculated. Rather than looking at your salary, lenders will take the potential rental income of the property as your primary income source. Lenders will want your anticipated rental income to meet at least 125% of the monthly interest payments on the loan.

One further thing to note is that a deposit on a buy-to-let mortgage tends to be larger than for a standard loan, with lenders typically requiring a down payment of at least 25% or even 30%.

 

Get the right tenants

The type of tenant you get in can significantly affect your plans. It’s essential to be on the lookout for tenants who are responsive, look after your property and – most importantly – pay the rent on time.

To avoid ending up with dodgy tenants, you should meet prospective occupants before signing a contract, as well as checking all the following:

• references from employers or previous landlords
• previous payslips
• credit rating.

 

Keep your property in order

Keeping your property in order is crucial if you want to attract the right kind of tenants and avoid being out of pocket.

As a landlord, you should carry out regular inspections, make sure you hire contractors who are good at doing their jobs, educate tenants on how to prevent damage to the property and always check its condition personally, or through an agent, before and after tenancies begin.

 

Know your responsibilities

Remember that becoming a landlord means that you have certain legal obligations, such as annual gas safety checks. Failing to comply with such laws could mean you’re committing a criminal offence.

Deposit protection schemes are another legal requirement, and you will be fined if you don’t use one.

There are two types of government-backed deposit scheme: insurance and custodial. Under the former, the landlord or agent retains the deposit and pays interest to the insurer. The latter option, where the deposit is paid directly into the scheme and can earn interest, is free to use.