Buy-to-let properties have become a popular type of investment. They are a medium to long term investment which provide both income and capital growth over the long term, despite occasional fluctuations in the property market.
The important thing to remember about buy-to-let property is that there should be a demand from tenants to let property in the area. It is not necessarily a property that you would choose to live in yourself. A suitable property in the right location can make you money, but there is also the potential to lose money if the property is not right for the demands of the market, or the market experiences a major change.
Understanding this and ensuring you have contingencies in place to cover interest rate changes, vacant periods, non-payers and drops in the market value are important to a profitable investment.
- Be Prepared
Do your research. You’re investing time and money into the buy-to-let market so you need to thoroughly understand how much you are prepared to invest, how much you could afford to lose in a worst case scenario and what your legal obligations and responsibilities are.
Things you will need to think about include:
- Anti-money laundering checks
- Buildings and contents insurance
- Buy-to-let mortgages
- Cleaning and maintaining the property
- Electrical Installation Condition Report (EICR)
- Energy Performance Certificate (EPC)
- Fire & Furnishing Regulations
- Gas Safety Certificates
- Houses in Multiple Occupation (HMO) Regulation and Licensing
- Housing, Health and Safety Rating System (HHSRS)
- Income Tax
- Legionella Risk Assessment
- Tenancy Agreements
- Tenancy Deposit Scheme (TDS)
- The Right to Rent Scheme
Quite a list, and that’s not exhaustive with legislation always changing.
- Seek Professional Advice
Accountant: Any income earned from your buy-to-let property will be subject to income tax. You will also have to pay Capital Gains Tax when you sell the property. It is recommended to talk to an accountant to understand the tax implications.
Solicitor: The legal complexities of purchasing a buy-to-let property are different to buying a residential one. Talking to a conveyancing solicitor who has experience of buy-to-let will help you to understand the process.
Lettings Agent: A reputable lettings agent will be able to advise you on the lettings market in the area you are looking, give guidance on possible properties to purchase and advice on services offered to help you to find tenants, manage and maintain the property and not forgetting – collecting the rent!
Mortgage adviser: Many companies specialise in offering buy-to-let mortgages. Professionally qualified advisers will be able to look at the options suitable for your circumstances and find the best options to suit your needs.
- Do your sums
When considering your budget, you need to think about the costs involved with purchasing and managing a buy-to-let property. There are some useful calculators that can help you to do your sums for:
- Stamp Duty Land Tax: find out the liability on your property purchase.
- Purchase costs: You’ll need to factor in Legal Fees, Survey Fees and decorating/furnishing fees.
- Gross Yield: If you know the rent you will receive for your property you can estimate the return on your property investment.
- Buy-to-let rent: Find out how much rental income you would need to receive to secure a mortgage based on the purchase price of the property and the mortgage amount required.
Ultimately it is a decision about the rental yield of the property and the potential capital gains on the property.
- Know your lettings market
If you’re looking for a property to buy, it is important that you understand the local lettings market and what type of properties are in demand.
You will need to think about the type of tenant you would like to attract, what stage of life they are at and what amenities and facilities may they be looking for.
If you are considering purchasing a property that already has tenants, you will need to check their existing tenancy agreement and find out when it expires.
- Look after your tenants
You have a legal obligation to ensure that the property you let out is fit to live in and meets all legal requirements. It also pays to respond to any maintenance requests promptly as this could stop more longer term and potentially costly problems from arising.
Providing a good level of service to your tenants, either directly yourself or by using a management agency could also mean that good tenants stay longer, which provides a more stable and regular rental income and you don’t have any additional costs associated with finding new tenants.
- Stay on top of the paperwork
Before a tenant moves into a property you must obtain a signed tenancy agreement. Without this your tenant may acquire rights where you may find they are difficult to vacate the property, even if they are not paying the rent.
Specialist building and (potentially) contents insurance known as ‘Landlord Insurance' will be needed. This should be comprehensive to cover you if something unexpected happens. Sometimes this cover can also be purchased with rental income cover in the event that your tenant doesn’t pay.
- Choose a letting agent with care
You can choose to manage the property yourself or employ a letting agent who can do this on your behalf for a charge. Letting agents will be able to help you to:
- determine which properties are most popular in the local rental market
- select quality tenants, doing credit checks and getting references
- keep up to date with the latest legislation and ARLA regulations
- market your property with professional photographs, floorplans and tours
- provide property management services
For more information visit Intercounty Landlords
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