January 31, 2018

Investing in Buy-to-Let Property: Advice for Aspiring Landlords

Investing in buy-to-let property is still an attractive prospect for many people, despite recent changes in the way buy-to-let investments are taxed.


The changes mean that landlords are no longer able to offset all their mortgage interest against their profits – but investing in buy-to-let can still pay off.


However, the changes mean that if you do want to enter the buy-to-let market, you need to do things properly if you want to see a return.


Here’s our essential advice for anyone considering investing in buy-to-let property.

Research the market and know the pitfalls


Before you invest, be sure that buy-to-let is the right investment for you. Are you aware of the risks? Are you willing to tie up your money for a long period of time? Do you understand the time and costs involved in owning and managing a property?


Research the market as much as possible, and if you can, speak to somebody else with experience of investing in buy-to-let property.


Do the maths on your investment. Research the cost of properties you’re interested in, and the rent you’re likely to get.


Look at buy-to-let mortgages, and use online mortgage calculators to work out how much your mortgage repayments will be. Buy-to-let mortgages generally require a larger deposit than residential mortgages, usually at least 25%, and rates are often higher. Many of them also come with large arrangement fees.


Factor in maintenance costs, and the likelihood that the property may be without tenants for a few months.


Be realistic about whether your investment will work out. If you’ve done the maths and it still seems like an attractive prospect, consider taking the next steps…


Choose the right area


If your investment is going to be successful, you need to buy in an area where people want to live.


Areas with strong transport links, good schools, a lively bar and restaurant scene or those close to universities could all be promising prospects, depending on who your target tenants are.


Think about the type of property you want to buy and can afford, and the people who might want to live in it, and try to match the location to those people.


Don’t limit yourself to properties near to where you live. The advantage of owning a buy-to-let property nearby is that you’ll be able to manage it more easily, but you might be able to get a better return elsewhere.


Shop around for mortgages


Cast your net as wide as possible when looking for a buy-to-let mortgage. The more clued up you are, the more likely you’ll be to get a good deal.


Check lenders’ websites and use comparison sites to see what’s out there. Remember, different sites will give you different results, so use a few.


Consider speaking to a reputable independent broker. They’ll be able to talk you through the available options and help you decide which one is right for you.


For more information on buy-to-let mortgages, check out the Money Advice Service’s guide.


Consider doing up a property


If you’re willing to put in the work, you might be able to increase the value of your investment by buying a property that needs improvement and doing it up.


Properties in need of renovation can go for bargain prices, and it’s often possible to negotiate hard. Then you can add significant value straight away, giving you a swift return on your investment and a greater margin of safety.


Again, do your maths before investing. Work out the cost of refurbishment and the likely increase in value. As a rule of thumb, aim for a final value equal to at least the purchase price, plus the cost of refurbishment, plus 20%.


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Aim for rental yield


You may be tempted by stories of buy-to-let investors with huge portfolios worth millions – but in reality, it’s better to focus on the rental income you’ll receive.


When comparing different properties’ values, look at their potential rental yield. This is the annual rent you could make expressed as a percentage of the purchase price. For example, a £100,000 property with an annual rent of £8,000 has an 8% yield.


Mortgage payments, maintenance costs and agents’ fees will all eat into this return, so factor these in when doing your calculations.


Investing in buy-to-let property: A summary


We hope our guide to investing in buy-to-let property has left you a bit more clued up about the potential risks and returns, and how to make the most of your investment.


If you’d like to know more about buying a buy-to-let property, get in touch with our team of experts today – we’re always happy to help.


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