Despite coming under pressure from banks and other lenders, putting restrictions on lending and higher stamp duty, many people still regard a buy-to-let property as a good investment. They see the volatility of stock markets and low interest rates on their savings as a good reason to buy a second property as a means to increase their income.
There is no reason to believe this cannot be achieved, but it is important people understand that there are pitfalls they could fall into if they do not keep their wits about them.
With this in mind, we have compiled five points to help people realise what it means to be a buy-to-let investor and a landlord.
1. You must choose the right location
Check the level of rental demand in a particular area of location. If you are thinking of buying a second property with a view to letting it, you must do your research.
If you are considering buying somewhere away from where you live, find someone who is familiar with the area. They could tell you about travel links, local amenities, and all the things that people are looking for in a place to live and perhaps raise a family.
2. Get the best deal
Although it is tempting to take the first mortgage deal you are offered, it could turn out to be a very costly mistake. Banks and building societies, like any other businesses, are in the money lending world to make a profit, and they will do their best to make as much profit from you as they can – if you let them.
It will pay you to get independent and expert advice from people who know the local buy-to-let market. The benefits you receive from such advice may save you money in the long run.
3. Does it all add up?
There are many factors you will have to take account of when applying for a buy-to-let mortgage. But the main factor to consider is: will you be able to afford it? However, let us look at some of the things you should be aware of before coming yourself to a mortgage.
Most lenders of buy-to-let mortgages demand the rent you will be charging will cover 125% of the repayment, and many are asking for large deposits of over 25%. Many charge high fees to arrange the loan.
There are other factors to be considered as well, such as maintenance cost, or what will happen if interest rates rise, or your property becomes vacant for a while? Once you are aware of all these costs, you must sit down and decide if you will be recovering enough revenue to protect your investment. It is wise to obtain some advice before you sign on the dotted line.
4. Target your tenants
It is important to be aware that different types of tenants will demand different things from the tenancy. A young family will have different needs from a young professional couple with no children. Students will expect something entirely different from both of these.
If you make your property comfortable for your tenants, they will stay longer, and this can only be good for you and your investment. Of course there are tenants who may in time prove difficult and stop paying their rent. The best way to guard against this happening is to have your prospective tenants vetted by people who have experience in this field, and take out a rent guarantee scheme.
You can take expert advice on both of these schemes.
5. Will you be a hands-on landlord?
By this we mean a landlord who takes responsibility for everything that owning and renting a property involves. Maintenance, repairs, collecting rents, vetting the tenants, and dealing with many of the other small problems that may arise. If you decide to take this route you must be prepared to give up a lot of your time.
However, you could let an agent manage your property. It is true you will pay a fee for this service, but that fee will relieve you of the anxiety and stress that comes with dealing with difficult tenants and maintaining the property.
These are just some of the things someone new to letting out a second property should be aware of. However, we do stress the importance of seeking expert advice. If you are thinking of buying a second property with the intention of letting it, why not contact us before you take the first step?
We can offer you advice on everything you will need to know about buying a second property and letting it out.