Planning to Buy to Let?

Some things to consider if you are planning to buy to let

When you are looking at investing in a buy to let property it is important to keep in mind the point is to make a return on capital growth or rental income.

Don’t allow yourself to fall into the trap of buying a chocolate box cottage unless you are confident you will be able to let the property and make your investment work for you. It’s a mistake is to fall for a property you would buy for yourself as the chances are you will never live there. Indeed if you are borrowing to fund a buy to let property the mortgage provider will expect it to be let in terms of the mortgage conditions and personal or family use could prejudice your mortgage. You should also check that the lender will allow holiday let or AirBnB as again not all do.

Think about buying at the right price, in the right area for capital growth and rental return. Buying a property for £200,000 that only achieves £600 a month could be bad business when you could buy two or even three properties and double the rental returns, unless of course the end game is personal use or you are content to rely on capital growth. However unless you plan to retain the property as a long term investment vehicle and you are content you will be able to offload it to similar minded investors try to buy in a desirable or up and coming area as you will want an exit strategy and no one wants to sell at a loss.

Think also how much time and effort you are able to bring to the project. If it needs work you need to budget not only for the repairs but the down time while the property is brought up to tenantable standard as well as the effort you will need to do the work or to arrange trades and project manage. You might be deterred from buying into lower value properties due to the perception of having more issues with the tenants but again you could appoint managing agents and look at that as a cost you can set off against the extra income. Hands on may suit some but your time is valuable and the extra stress and inconvenience is not a cost you can allow for tax! Bear in mind that these days there is an increasing trend to rent whether out of choice and flexibility or inability to afford to buy and with higher standards of property comes a better quality tenancy.

It is also important to be aware of the regulations governing private rental properties and private landlords. If you just do your own thing there is a risk that you could fall foul of the regulations and this could have serious consequences both financial and in terms of other sanctions. For example failing to lodge the deposit in a designated and Statutory approved scheme could mean you having to pay up to three times the deposit to the outgoing tenant. There are also many health and safety regulations governing such items as gas and electrical safety and certification, smoke and carbon monoxide detectors, and generally keeping up the property so that it meets the “repairing standard” test. You might well find it easier, more cost and time effective and tax efficient to employ professional letting agents to look after the property for you.

Investing in property like any other investment is subject to risk and market and other external factors so the value of your investment could rise or fall. However if you decide that property investment is for you think about what you are trying to achieve and don’t be distracted by personal taste and preferences. If it’s in the right place at the right price and the sums add up buy to let can make you a reasonable return particularly if you are prepared to wait for growth. Let’s face it for most investors leaving the money sitting in the bank gaining little or no interest is not an attractive proposition.

In conclusion be sure to do your homework, look before you let, work out the costs including purchase costs and all other expenses you are likely to incur and calculate your projected income. Be prepared for changes and void periods and budget for losing 1 months rent in a year as tenants come and go. If it works out differently you will be better or worse off but at least you have a budget and a financial survival plan that helps you through.

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