Buy to let mortgages: 10 essential tips for landlords
Buy to let mortgages: 10 essential tips for landlords
It was not such a long time ago that buy-to-let was the favourite product of property investors. Things have moved on a little bit since then, but buy-to-let is still a great way to invest your money if you know how to do it. We have listed 10 tips every buy-to-let landlord should be aware of. Let's start with no 1:
1. Research: Do you clearly understand what a buy-to-let is? The risks involved, the potential returns, the benefits? It is vital that you do your research first. The net has got plenty of resources such as specialised buy-to-let sites and buy-to-let information guides. Do you know any buy-to-let landlords? Talk to them and ask them about the difficulties they've had to face and the mistakes they've made. Don't forget that a buy-to-let may not be the best investment for you. Have you considered investing your money in shares, bonds, or simply in a high rate saving account? Buy-to-let mortgage rates may be low at the moment, but there is always a risk that house prices might collapse in the forthcoming years.
2. Target the right area: The "right" area has got nothing to do with price. The "right" area is a somewhere where people want to live, and therefore rent your property. Think about your own area. Where do students live? Where are the top schools?
3. Know your tenants: Who are you potential tenants? Get to know them, put yourself in their shoes and try to understand what they are looking for in a rental property. Young people are likely to look for a place that is easy to clean, comfy but not necessarily fancy. Families will probably already have some of their own furniture so you need to take that into account.
4. Be aware of the risks: Investing in a buy-to-let property isn't without risks. Houses can be without a tenant for some time. Many buy-to-let investors do their planning assuming that the property will be empty 3 months in a year. And what about repairs or accidental damage? Be ready for all eventualities.
6. Decide how much you would like to be involved: Buying a new property is just a start. In order to rent out a property, somebody has to prepare the advertising, the viewings, and when the new tenants are in, be able to deal with repairs. If it's not something you are willing to do yourself, you can use the services of an agent that will do that for you.
5. Learn how to negociate: Buy-to-let buyers have got a major advantage compared to next-time buyers: they are not involved in a chain, so do not rely on having to sell a property to buy another. Bear that in mind when you negotiate a deal with your lender.
6. Do the maths: You need to get a pen and paper along with a mortgage calculator and do the maths. What is the value of the potential properties you are interested in? What is the potential rent? As a rule of thumb, lenders would like the rent to be 130% of the mortgage payments as a minimum, and will normally require a 15% deposit as a minimum. The buy-to-let mortgage rates are usually higher than regular mortgage deals and have higher fees.
7. Compare: Do not go to the first bank you see and ask for a buy-to-let mortgage. Shop around, and think about using a mortgage broker that specialises in buy-to-let mortgages. Try mortgage sites such as buy-to-let mortgages or compare the market mortgages to find a local adviser.
9. Don't limit your search to your local town: buy-to-let landlords normally invest in properties in their own area. You need to realise that your town may not be the best place for a buy-to-let investment. The advantage of a property in your area is that you can keep track of it yourself, but bear in mind that you can use the services of an agent to do that on your behalf should you decide to buy a property further away from where you live.
10. Don't think too big too soon: You sometimes read about buy-to-let landlords who have made large sums of money and built a large portfolio. This is not likely to happen to you, so invest for income and not for short-term gains. Your buy-to-let returns should come from the rent of your buy-to-let property. As the majority of buy-to-let mortgages are interest only, the amount of your loan won't be repaid at the end of the term. Make sure that your rent covers more than your mortgagepayments so that you can build up a fund to cover emergencies. Once you have covered all your costs, tax bill, and repayments, you can use the money left as a deposit for other buy-to-let investments, or maybe repay the loan at the end of the term.
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