With rental incomes on the rise, investing in a buy to let property can be a great way to bring in additional regular income. Of course, there are also a number of risks associated with buy to let investment, so it’s important that you take these into account too.
Why buy to let?
Although the buy to let market used to be reserved for the privileged few, today many people are seeing the benefits of becoming a landlord. A buy to let property can be a great investment, potentially offering regular returns that are typically more lucrative than savings accounts and less risky than stock market investments.
Check out CMME’s complete guide to buy to let for the self-employed here
Buy to let mortgages
As a general rule, buy to let mortgages are more expensive than mortgages for residential properties, because they represent a bigger risk for lenders. These mortgages also tend to require a larger deposit, usually a minimum of 25%. If you can put down a deposit of 40% or more, you’re more likely to secure the best deals. It’s also important to keep in mind that buy to let mortgages are often set up on an interest-only basis, meaning that once the term is up, you’ll either have to sell the property to clear the balance or pay it off another way. When deciding how much to lend you, lenders will consider the potential rental income from your property. To ensure that you make a profit, it’s advisable to look to make a rental income of at least 125% of your mortgage repayments and additional costs. Benefits of investing in buy to let for contractors, freelancers, and the self-employed If you’re self-employed, a buy to let investment can be incredibly beneficial, providing a guaranteed source of revenue between contracts or jobs, or helping you to build up an income for your retirement. However, there are costs involved, so it’s important to ensure that you know how to get the maximum return on your investment.
Top Tips for Buy to Let
Research the market
Before you seriously consider investing in buy to let, it’s important that you ensure you have a good understanding of the market, including the risks as well as the benefits.
Chose the right area
Once you’re sure that buy to let is for you, it’s time to start thinking about the area you want to invest in. It’s important to choose an area where people want to live but that is also within your budget.
Do the maths
Next, it’s time to sit down and work out the maths! Look at the prices of the houses you’re looking at and the rent you’re likely to secure from them. You also need to factor in maintenance costs and the possibility that the property could sit empty for a couple of months at a time between tenants. How much will you realistically make after costs? Is it worth the investment?
Shop around to get the best buy to let mortgage
When it comes to finding a buy to let mortgage, it’s important that you shop around if you want to get the best possible deal. Speak to an independent broker who will go through the various options available to you and help you identify the best mortgage for you.
Who are you renting to?
Rather than focussing on whether you would want to live in the property when you’re looking for a buy to let investment, it’s important to think about your target tenants. Who is likely to be renting your property? What are their wants and needs?
Don’t be over ambitious!
When it comes to buy to let investments, it’s important to prioritise rental yield rather than short-term capital growth. Consider looking further afield or renovating a property Although many buy to let investors naturally look for properties close to where they live, this might not be the best investment. Instead, look further afield and consider properties that might need renovation as these could give you a better long-term return.
Haggle over the price
When you invest in a buy to let property, you’re in a really good position – you’re not reliant on the sale of your own property meaning you’re not part of a chain and so there’s less risk of the sale falling through. This can provide you with major leverage when it comes to negotiating a discount.
Understand the pitfalls
As with any investment, before you commit to a buy to let property, it’s important that you consider the pitfalls as well as the benefits. If property prices fall, how will this impact your investment? What will you do if your mortgage rates rise? Can you absorb the cost of your property being empty for a month or two at a time?
How involved do you want to be?
Once you’ve bought your property, you need to decide how involved in the rental process you want to be and how much time you can commit towards it. Will you rent it our yourself or use the services of a professional agent to take care of everything for you? If you’re self-employed and you’re looking to get on the buy to let market, get in touch to find out more about the buy to let mortgage options available.