Putting your money into property has long been seen as one of the safest and most profitable ways to invest. However, with complicated tax implications on both your rental income and your purchase costs the first time buy to let landlord faces a tricky investment landscape. Add to this the fact that the property market can be a competitive one and it’s easy to see why more people don’t follow this route to get returns on their savings.
In this guide, we take a look at some essential tips that are worth remembering when you are considering a buy-to-let investment.
Consider Whether Buy to Let is The Right Investment
Compared to the current climate of low interest on savings couple with low mortgage rates, sinking a lump sum into a buy to let property can, at first glance, appear to be a more profitable way to get a good return. However, with increased stamp duty costs and changes to tax reliefs, for some it may not be as good as an investment as a pension.
We would strongly recommend that you discuss your plans for retirement with an Independent Financial Adviser before committing to a buy-to-let investment. At Property Assistant, we work with a number of local and national IFAs whose services we are happy to recommend so please do get in touch for details.
It goes without saying that planning your investment should start with research, and plenty of it.
You should ensure that you research buy-to-let investment in general (including speaking to an IFA) as well the rental markets in the specific area you are considering. It can be worth speaking to a local estate/lettings agent to discuss your plans with.
If you know someone who has experience in the buy-to-let market as a landlord, then it is always worth asking them their opinion. Most people will be happy to share their experiences (both good and bad) so as to help you avoid making mistakes.
The more knowledge you can obtain through research then the better chance you have of making your buy-to-let investment a success.
Here at Property Assistant, we are happy to speak with any aspiring new landlords as well as experienced investors to help them find a suitable property. We also have a nationwide network of other independent property agents whom we can recommend.
Crunch the Numbers
Though this will also form part of your research, we cannot stress how important it is that you run through the finances of your investment with a professional before you take the plunge. It can be all too easy to overlook a simple element of your financial commitments and doing so can mean the difference between profit and loss.
Consider all of the eventualities that might arise as a result of your investment and ensure that you have covered all the bases. Costs to consider, include (but are not limited to):
- Capital cost of your deposit, stamp duty and usual purchase costs, fees and searches
- Mortgage repayments (interest and/or capital)
- Landlords insurance
- Loss of income insurance
- Repair costs
- General maintenance costs
- Exterior maintenance costs
- Redecoration costs
- Letting agent management fees
- Letting agent finders fees
- Marketing fees
If you do not have loss of income insurance, then you will also need to factor in the eventuality of your property remaining vacant and not generating an income.
You should also consider whether your investment can still return a profit if your mortgage interest rate increases.
Compare the costs of maintaining your investment with your projected rental income to determine whether you can produce a yield that is comparable to other forms of investment.
Focus on Your Target Market
During your research, you should have identified the demographic of the residents in the area you are purchasing a property. When you are developing and marketing, you should bear this in mind. If you are purchasing in a university town and expecting to reach a market for students then this will inform both your rental income goals as well as the kinds of facilities that will be expected.
A young professional couple will be looking for very different accommodation to retirees, students or a family.
Keep your target tenant in mind as you take on your renovations and upgrades.
Remember Your Goals
It can be tempting, particularly with a first-time investment to treat the property as if it were your own home and to over-develop. It is crucial, if you are to make a good profit, that you are not over ambitious with your plans and that you keep a close check on your budget.
Most buy-to-lets are purchased for the long term but you should remember that your investment should be focused on rental returns and not for the long-term growth. Your monthly overheads will not only include mortgage repayments and tax but also the running costs of insurance, maintenance fees and those of a lettings agent. You should also factor in additional costs such as emergency repairs and ‘dry’ periods when your property is not being rented.
Keep a reign on your spending in the short term; yes, the property may appreciate in value over time but your initial goals are to profit (or, at least, breakeven) from the rental yields.
Cast a Wide Net
Many landlords, particularly first-time investors, prefer to purchase property in an area that they know well. Not only can this help when it comes to research but it feels more secure to have your investment close to home.
However, this may not be the best option.
During your research stage it is worth casting a wider net to include properties that are further afield as well as those that require some level of refurbishment.
Haggle Over Price
As a buy-to-let investor you are in a strong position as there is no chain involved in your purchase. As a result, you can expect to be able to negotiate a discount with your property. As there is less risk of the sale falling through, more vendors will be prepared to lower their asking price.
It pays to have the help of an experienced negotiator when making an offer on a property.
Property Assistant has worked with plenty of buy-to-let investors over the years and has considerable knowledge of both local and national markets. Not only are we happy to offer no-obligation advice to help with your research but we can also offer a range of services to help with your investment plans; from finding the right opportunity, sourcing a reliable IFA and negotiating your purchase to finding tenants and managing your property.
Contact us today on 0118 912 2370 to discuss your plans.
Featured image via Pixabay.