Buy-to- let can seem like an intimidating investment – there are a lot of variables at play – but many people see it as an attractive investment during times of volatility in conventional investments like stock. Due to recent tax changes, there’s now an additional duty on buy-to- let purchasing, but it can still reap great rewards if you do things right. Here’s our essential guide to buy-to- let, the right way.
Understand the Ups – And the Downs
Before you commit to the idea of getting into buy-to- let, it’s important to understand the market as a whole. At a glance, the market is attractive to many because, compared to savings and stocks, it looks pretty appealing right now. For those with big enough pockets to pay the deposits, the market’s currently-low mortgage rates and growing demand looks great in many ways to those looking to profit. Now that savings rates are lower than recent years, investments are looking better to a wider range of people, and there’s certainly a satisfaction to buying property and fixing it up to add value yourself.
However, it’s important to keep in mind that low rates will eventually creep back up again – you need to be comfortable in knowing that you can withstand that inevitability. It’s an investment often in the tens of thousands, but similarly can return big profits, and it’s essential that you’re aware of potential losses as well as gains. Buy-to- let comes with few safeguards and no guarantees, but if you believe it to be a wiser investment than stocks and shares, a bit of effort can pay off.
Choose Your Area Wisely
A wise investment in housing is not necessarily a large one, or a small one – it simply means investing in a place where people want – or will soon want – to live. Perhaps an obvious statement, but a vital one. Think carefully – if you’re looking to invest in property somewhere, it needs to be in a location with a particular appeal, present or upcoming. In particular, look for transport links, good schools, and great student areas; these are areas where there is most often high demand for housing.
Consider properties further away, or in need of love
Most buy-to- let investors stick with investing close to their own home – but that’s not necessarily for the best. If you’re going to be employing an agent, that agent will be able to monitor the house for you, and the best house for investing could be further afield. As said already, properties with good commuter links, good schools nearby, or prime for student housing are almost always better investments than those without.
In addition, properties meeting that criteria, but in need of some work, could be great for investment – provided you have the money available to fix it up. Their owners are usually more open to negotiation, and value can be added significantly by repairing and sprucing up the place. Make sure you can afford to fix it properly though – it’s a rough situation to be stuck with a half-fixed fixer-upper.
Run the Numbers
In buy-to- let, as with any investment, the numbers are critical. In property investment, it’s important to compare the cost of housing where you’re looking, and the buy-to- let mortgage rates you can get, with the rent you’re likely to get from it. Many lenders in buy-to- let will want rent to cover 125% of the mortgage repayments, and many of them also now want significant deposits as part of an agreement, thanks to finance officials having their eyes focused on mortgages as an area of potential exploit. They could even be tracker mortgages, so rates could rise with time – be prepared to deal with that. Make sure to shop around for mortgages from various lenders, like Woolwich, Accord, and
NatWest, to see who is offering the best deal. Comparing similar housing in the area, and the rent costs for those, is also important.
By finding the ranges of cost, rent, and mortgage, you should be able to see the viability of buy-to- let for that scenario very easily. Factoring in maintenance costs and the possibility that the property might not be taken up right away should give an even clearer view. Once you’ve run the numbers, it should be fairly clear whether or not this is a wise investment to make.
Consider Property Management
An important decision to make before you commit is that of how involved you want to be in the letting – do you want to rent it yourself, or have an agent take care of it?
If you’re planning to do it by yourself, you should set a significant amount of time aside for viewings, advertising, and, further on, repair and maintenance. You should also try to draft up a guideline of where you’ll advertise, how you’ll get paperwork (like tenancy agreements) and who you’ll contact if there’s a problem. It might seem intimidating, but it can be done.
On the other hand, for a small fee property managing agents will take care of problems with letting and the house. They will likely also have “seen it all before”, so there will be knowledge about what to do if anything goes awry. Agents will take care of maintenance, find and deal with the tenants and their problems, and generally make sure things go well in the letting process. They will even help with upkeep and any renovations that might need doing. It can be good to go hands-on, and do it yourself – there are certainly benefits - but often the approach that brings you peace of mind is a good one.
If you want to speak to The Spaces Collective about property management in London, contact us on:
[email protected] or call +44 7943 066646.