Like any investment, buy-to-let comes with no guarantees; there is always a risk as with any investment. Below are the ten steps to consider before making a decision.
If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits?
Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. In tough times a high-rate savings account will beat most investments. If you know someone who has entered the buy-to-let market, ask them about their experiences, or chat with other investors.
Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live?
Have a look at the rental market and homes to buy in your town on.
Before you think about looking around properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments. These days most lenders want a minimum of a 15% deposit, which protects against falling prices, and in the wake of the problems in the mortgage market many are now demanding 25% deposits. The best rate buy-to-let mortgages also come with large arrangement fees.
Do not just walk into your bank and building society and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make millions in profit. If you are looking for advice consider using a specialist buy-to-let adviser www.inshoreifa.com
Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and need a blank canvas.
We have all read the stories about buy-to-let millionaires and their huge portfolios, but a lot of these have gone bankrupt by over extending. The days of double-digit house price rises are gone, so invest for income not short-term capital growth.
Once mortgage, costs and tax are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments.
Most buy-to-let investors look for properties near where they live. But your town may not be the best investment. The advantage of a property close by is being able to keep an eye on it, but if you will be employing an agent anyway they should do that for you.
Cast your net wider and look at towns with good commuting links that are popular with families or have a sizeable university.
As a buy-to-let investor you have the same advantage as a first-time buyer when it comes to negotiating a discount. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a sizeable asset when negotiating a discount.
Before you make any investment you should always investigate the negative aspects as well as the positive. House prices are falling and if this continues will you be able to continue your investment? Even in popular areas properties can sit empty. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year - this gives a substantial buffer. Homes often need repairing and things can go wrong. If you do not have enough in the bank to cover a major repair to your property, do not invest yet.
Buying a property is only the first step. Will you rent it out yourself or get an agent to do so. Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs. If you choose an agent you do not have to go for a National, many independent agents offer an excellent and personal service.
For further information on Buy to Let mortgages we recommend you speak to Inshore Independent Financial Advisers at www.inshoreifa.com.