Buying your first buy to let (BTL) property can be daunting with so many different factors to consider while searching for the perfect investment opportunity.
Here are our top tips to help make it easier!
- Research your location
Location is one of the most important factors to consider when making a BTL purchase as the right location can lead to a strong monthly rental yield. However, investors also need to consider the long term and take into account how a property could appreciate, or depreciate, in value.
- Find the best mortgage
There are a wide range of BTL mortgage options available so make sure to shop around to find the best rate. You can save a lot of time and effort by speaking to an independent mortgage broker who acts as an intermediary to find the best loan for you while ensuring you and the property type meet the lender’s criteria.
- Who do you want to rent too?
If you have a specific tenant type in mind that you aim to rent to then choosing the right location is even more important to make sure that your property is in demand. For example, if you are looking to target professionals then commuter hubs are a good place to look for your BTL property. The places currently experiencing huge increases in demand include Reading, Southampton, Brighton, Basildon and Luton.
For student lets, university towns close to amenities are ideal while a town with a local community are important factors for families.
- Consider the risks
It is vital to consider any potential losses and fluctuations in the market such as a rise or fall in house prices or interest rates. Another important issue to take in to consideration are void periods, particularly with student lets, as well as costs associated with repairs to the property. When developing an investment model, many BTL investors consider how they would manage their property if it was empty for two months in a year.
- Calculate the costs
There are many costs to think about when running a BTL property such as mortgage costs, tax, maintenance and agents’ fees. In addition, an investor needs to be aware of upcoming changes in tax legislation as announced in George Osborne’s 2015 Summer Budget.
As of April 2017, tax relief on mortgage interest will be restricted to the basic rate which is currently 20%. This means that mortgage costs above 75% of rental income will result in the BTL investment becoming loss making. For additional rate (45%) taxpayers, this threshold falls to 68% of rental income.
An alternative is for a landlord to manage the property through a business as companies pay a lower tax rate than individuals. However, this should be discussed with a professional as there are a range of charges associated.
- Protect your investment
Protecting your BTL investment is essential to minimise against the costs associated with repairs and rogue tenants. Damage to a property can become costly very quickly and this can be avoided for a small cost per month. Our landlord insurance can cover a wide range of BTL properties including houses, flats, bedsits and HMOs.
- How involved do you want to be?
You can shoulder the responsibilities and rent out the property independently or you can rent the property through a letting agent. Although agents charge a fee, they will also deal with any tenant problems and usually have a good network of handymen when repairs are needed.
Letting out the property yourself involves a lot of time being invested in to doing viewings, advertising and repairs.
Although there is a lot to think about before purchasing your first BTL property, it could generate high returns for years to come if undertaken after thorough research and planning.
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