Looking to invest in property and become a landlord? This guide takes a look at three key factors to take into consideration.
Before you begin, familiarise yourself with the buy-to-let market.
Fully explore whether this will be the most profitable return on your investment. With the rise and fall of interest rates, it may be that a high-rate savings account, for example, could provide a better return. Remember that selling a property investment isn’t a quick sale, unlike stocks and shares - you need to think long-term. When calculating whether this is the right thing for you, you’ll need to assess both the level of rental income and the capital growth (the amount of money you will make when you sell the property). Be honest with yourself about the risks involved with buy-to-let investment. If you know someone who owns buy-to-let properties, ask for their advice. Get in touch with your estate agent to find out more about investing in buy-to-let properties. They will be able suggest areas with the highest demand is as well as the kind of tenant you can expect to attract, and of course the average rent you can expect to achieve.
Set your budget clearly from the beginning and stay to it. Establish a maintenance fund for things like boiler repairs, redecorating between tenants and professional cleaning services. Factor in unforeseen expenses such as emergency plumbing or drainage problems. Be prepared for void periods or an initial delay in getting a tenant. Set yourself a healthy reserve, potentially up to six months’ worth of rent. If you choose to use an agent to manage your property, this will also cost you money but potentially save you time and hassle. Do your research into what kind of fees you will be expected to pay. Remember that you will be liable for income tax on your profit. Understand what can be offset against your tax bill. For example, accountancy fees, buildings and contents insurance and property repairs can maintenance can be included. Factor in stamp duty fees. They are an important element to take into consideration. For more information, visit uk.
You will require a specific buy-to-let mortgage. This property won’t be your permanent place of residence and your intention is to let the property, it is therefore assessed differently from a residential mortgage.
Typically, there are several key features to a buy-to-let mortgage:
Unlike a residential mortgage which is based on your own income, the lender will do an assessment on the likely income from the property. Despite the difference in assessment, some lenders may stipulate a minimum salary. You should expect to pay a higher interest rate than on a residential mortgage. This is to cover the risks involved when renting out your property. The deposit required is likely to be higher than with a residential mortgage. On average, it is 20% of the property value. Although not part of the mortgage process, it is worth noting that conveyancing costs can also be slightly higher. Shop around for the right deal.
Doing your research is vital and you need to treat this property as a business venture. Remember to focus on the practicalities, but also understand the figures and how they stack up.
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