Buy-to-let investing is beginning to look good again for people who have a large deposit. Low interest rates for saving accounts and stock market volatility are once again less attractive than investing in real estate. Today, there are better mortgage deals, low house prices along with high rents which are why buy-to-let is looking attractive, but there are no guarantees. Here are ten things to consider before investing in buy-to-let property.
1. Do the Research
Before investing money in anything, it is wise to know if you are making the right choice. You want your money to work as effectively as possible. High-rate saving accounts used to be a better option than many investments. Even though the interest rates are low now, they will go up, and investing in buy-to-let will tie up a lot of capital with the hope the property value doesn’t drop. It would be a good idea to talk to someone who has already entered the buy-to-sell market. Other options are-
- A five per cent annual return on a fixed rate savings account
- A five per cent annual return from funds, investment trust or shares with a 10 per cent tax on income as well as a tax-free capital growth through an Individual Savings Account (ISA). This also gives you the chance to sell quickly if needed.
2. Check the Numbers
You know how much you have for a deposit, and basically the price range you need to stay within when looking for property to buy. With these facts, you should calculate the amount you will spend and the amount you will get in rent. Today, most lenders demand 25 per cent deposits or more for high residential rates. There are also buy-to-let mortgage fees. You need to fix the mortgage rate with leeway for any rate rise in the future to decide if this is the right kind or investment for you. Consider if the property is empty for several months. Will you still be able to pay the mortgage?
3. Consider the Area
A buy-to-let investment will work best if it is in an area where people want to live. If there is a demand for space in a certain area, the rent you can get will be higher. Neither an area being expensive nor especially cheap makes it a promising place. Some considerations are-
- Is there good public transport in the area?
- Are there good schools in the area?
- Is it near a university and popular for students?
- Is the area fashionable, trendy or run-down?
4. Look Around
The buy-to-let property near where you live may not be the best investment. You may think you need to be able to keep an eye on your investment, but if you employ an agent, they will look after your property. You should look in a place where there may be good public transportation or a large university. An agent helping you find property will be able to look further afield than you may have the time to do.
5. Shop Around
It is not wise to take the first mortgage that is offered, even if it is from your own bank or building society. Lenders are in competition to give good deals, and it is worth looking for one. You have the right to ask questions and get the numbers from any lending institution without any obligation on your part. A mortgage broker who specialises in buy-to-let will be able to give you good advice.
6. The Tenant’s Point of View
When you know the location of your property, you can think about the needs of a possible tenant.
- Families want plenty of space and the possibility of making the property their own. They may want to hang their own pictures and have other decorations. This will make it more like home for them and encourage them to stay longer in the property, which is good for the landlord.
- Students want a simple, easy to clean place.
- Young professionals want a trendy and modern place.
There is insurance you can get that protects you in the event that your tenant fails to pay the rent. Called rent guarantee insurance, the policy may be part of a larger package of landlord insurance or a stand-alone product.
7. Be Practical
It is wiser to invest for income than for possible huge real estate price raises. Rent is the key. If your rent is more than your mortgage payment, agents fees, tax and running costs, you can build up an emergency fund and save it or invest it. If you save it, you can pay off the mortgage at the end of its term and own the property’s full value.
8. Bargain with the Lender
If you have a deposit, and do not depend on the sale of one property to purchase another, you are in a strong position with the lender. Lenders want your business, so you should make low offers with each one you approach and not let them convince you that you need to pay more.
9. There are Possible Difficulties
Your property could sit empty for several months. If you haven’t planned for this, you could find yourself in financial difficulty. Your property may need substantial repairs. You need to keep some money in the bank to cover these things before you invest.
10. Who will look after the Property?
There are two options. You can rent the property yourself or have an agent rent it. An agent will charge a management fee for dealing with any problems that arise. They will have electricians, plumbers and handymen to take care of problems. If you are in charge, you will most likely have to spend evenings and weekends to take possible tenants for viewing, arranging advertising and overseeing any repairs. Your buy-to-let investment could take more time than you may be able to give. Agents need not be expensive. As with the lenders, you can shop around and ask several agents what services they offer and what the cost is.