Buying a property is one of the biggest decisions you make in life, and even if that property is not for you to live in, but as an investment, a lot has to be considered before you take the plunge and commit to the purchase. In many cases some would say that perhaps you have to be even more careful with buy to let, as the property your are about to buy is required to not only cover all expenses associated with it, but at the end of this provide an income.
So where to begin? The first key decision is to decide what you are looking for from the investment. Will this be return on capital, yield, or will it be growth of your capital, price of property, or will it be a combination of both. Once this has been identified, the next step is to choose the area that delivers your requirements. The first rule here is stick to your parameters and don’t deviate, as compromises will lead to disappointment further down the line when returns don’t match expectations and costs impact on profits. Remember this is a business decision, and not somewhere that you are going to live, so avoid the trap that many prospective landlords fall into, and that is buying a property that they want to live in. Invariably this leads to you paying too much for a property as you have let your heart lead and not followed your head.
Once you have found the right property, your next steps are to arrange for valuations for a mortgage from respectable lenders, work on the basis that most BTL mortgage lenders will lend around 70% against the value of the property on BTL basis, obviously you can borrow more in many cases, we suggest using a rule of thumb of approximately 70% as this tends to avoid disappointment. Another major consideration is to arrange management of the property. This tends to leave a naive investor restricting themselves to local properties as they feel that they can manage the properties themselves, and hence avoid the cost of a managing agent. First mistake here is that this approach restricts the scope of the areas you can look at for your investment, and as previously mentioned the best returns are not necessarily found on your doorstep.
Another issue many commonly face is the false belief that managing your own property is cost effective, this tends not to be the case as said previously, the property is more than likely further afield than is reasonable to drive to and keep an eye on, also the aggravation of running a property with a tenant is not to be underestimated. A managing agent these days is far cheaper, around 8-10% of the monthly rent, saves you the anguish of dealing with tenants, both monitoring and collecting money on your property, and also offer many more services, including void insurance and rent guarantees, thus avoiding periods when there is no income, but the bills keep rolling in.
Once you have arranged your finance, have appointed a solicitor, and appointed a managing agent, it is now time to sit back and enjoy the rewards that owning a BTL property can bring.
For more information about Buy to Let, and to speak to your own personal property expert for more information, call us on: 0207 183 0646 and let us help you today.