The Buy to Let market continues to thrive, as people look to invest in bricks and mortar in a time of low-interest rates and shaky stock markets. Making buying a property to let is a great investment.
Tax changes for investors and legislation changes for landlords have complicated matters in recent years but, if you get it right, it remains a popular choice for growth and income.
Here at Howkins & Harrison, we are on hand to advise you every step of the way, from building your Property Portfolio to managing tenants on your behalf.
Mark Manning (pictured), our Lettings Partner, shares his best advice for entering the Buy To Let market:
Why Buy To Let is a good investment
Property investment is an attractive choice when weighed against low savings rates and the uncertainty of stocks and shares.
The property market, both house prices and rents has been rising strongly since the 2009 correction, and provides a valuable opportunity for both capital growth and monthly income.
For those with a lump sum to invest as a deposit, low interest rates also mean mortgage rates are at record lows, although its worth calculating your investment based on them rising. Interest rate cuts helped many landlords in the past but they can currently only go one way.
That said, a shrewd investor can still capitalise on healthy demand for rental properties and no sign of a rate rise in the future.
Do your sums
Buy To Let is a long term investment, so make sure it is going to be the best option for you. Be certain that you are willing and able to tie up that capital for a long period. Make sure you can comfortably weather any rises in interest rates or short term falls in capital values.
Consider your size of deposit before thinking about types of Buy to let properties to consider. Lenders typically demand a 25% deposit so this will have a big impact on your budget.
Most Buy To Let Mortgage lenders will ask to see a rental income that will cover 125% of the mortgage repayments
Next work out your typical yield
To do this simply,
Calculate your annual rent and subtract your annual mortgage costs.
Calculate this figure as a percentage of your initial deposit.
For example – a £100,000 house will be bought on £25,000 deposit
A 5% mortgage interest on the remaining £75,000 will be £3,750
A monthly rental income of £500 = £6,000 per annum
The annual return is 9%
Don’t forget to add in other purchase costs too for a more accurate figure.
There are a couple of other things you should also bear in mind when considering your finances
- Factor in maintenance costs and management fees
- Allow a contingency for the property to be empty for a month or two
- Calculate your yields on a few scenarios where interest rates rise
Know your market
Talk to us, or other Buy To Let investors in the area and ask them about their experiences, good and bad.
It’s important to pick your area carefully, not only in terms of affordability, but also desirability for potential tenants. Remember, they have to live there, not you.
Things to consider include
- Commuter belts – are there good transport links and good employment opportunities
- Schools – If you are buying a family property, catchment areas to Outstanding Schools can be very attractive
- Students – Is there a University or College nearby
- Is there major investment planned for the area which might see property values rise (or fall)
It’s probably easiest to buy a property nearby, as you are more likely to know the area, but don’t dismiss other locations. Our agents have expert knowledge of a wide region of the West and East Midlands and would be happy to advise.
Know your limits
Properties which need renovation or improvement are often good investments as it is easier to see a capital return. However be confident of your own abilities. If you are looking to add value, make sure these costs are realistic. Don’t think you can do all the work yourself if you have no real experience and have a full time job. Also calculate the time the property will be empty while the work is being carried out.
Once again, talk to other people about their experiences and get some honest views.
Know your price
Buy To Let is a purely commercial decision. When buying a property to live in ourselves, emotion plays a part and sometimes a buyer will pay more simply because they have to have it. With properties to rent, it is vital that you stick to your budget and not budge on your ceiling price. Overpaying could have drastic effects on your yields.
Know your tenants
Think about who will live in the property and what those people will need.
Students will have very different requirements than families in terms of style and accommodation.
Young professional couples will be looking for clean, modern and stylish lines with time saving features
A family will need plenty of storage and easy to clean, comfortable décor
Students will need bedrooms that can also accommodate a desk, as well as storage, and it really helps if all bedrooms are of similar size.
Remember that all tenants will want to make the property their own, so make that as easy as possible for them and they’ll stay for longer.
Consider Landlords insurance too to cover damage and failure to pay the rent
Know your workload
Many landlords choose an agent to let their property. You then have the choice of managing the tenants yourself or asking the agent to manage the relationship on your behalf.
This does involve a management fee, but when we manage a property, we deal with the whole relationship and property. This includes raising and managing any problems or issues that may arise and carry out all the necessary tenant and property checks. This means that as the Landlord, you and your property remain compliant with all the Landlord legislations. Plus, we also have a great network of affordable tradespeople that we can tap into if needed.
Talk to our Lettings team about whether Buy To Let is right for you, and how our management service can help. Our team manage properties across Warwickshire, Leicestershire and Northamptonshire and our residential sales team are on hand to find you the perfect property to buy.
Find out more here.