What to consider when purchasing a property to let out!
There are many things to consider when buying a property to let out. You need to take into consideration, the upfront cost, the ongoing cost and the potential that the property may be vacant for periods of time.
There are many reasons to buy to let. It all comes down to making money whether that means money above the mortgage costs or a little nest egg for the future. Here are a few tips to make the most of your investment.
Buying in an area you know can help, but don’t restrict yourself to your own immediate area.
While you will know the neighbourhood and surrounding postcodes well, make sure you research others nearby, where the rental yields may be much better.
Convenience is a useful factor for prospective tenants. Being within walking distance of shops, railway stations, the town centre and so on will ensure that your property is high on the list of desirable places to live for tenants.
Try to avoid run down areas that will attract poor-quality tenants.
Speak with a local Estate Agent for advice on current trends in the sales and letting markets.
Type of property
Two-bedroom houses and flats are ever popular and appeal to a wide range of potential tenants, especially those who are finding it tough to get on to the property ladder.
Large family homes can command large rents but they appeal to far fewer potential tenants.
You might want to steer clear of period properties too, avoiding high costs on maintenance when things (inevitably) go wrong.
Newer homes will require less maintenance – but watch out for service charges.
Get out the calculator
Achieving both a good rental yield (income) and capital growth (a rising property value) is difficult.
As a rule, higher-yielding properties are typically at the lower end of the housing market: as rents increase the number of potential tenants narrows and yields begin to fall away.
In contrast, for capital growth, values at the lower end of the market generally do not rise as rapidly as for higher priced properties in desirable areas. Remember, you are not purchasing to sell again in a year. You will probably own the property for the rest of your life and then bequeath it, so concentrate on getting the best rate of return on your money.
Speak to a broker if you need to get a buy-to-let mortgage. Buy-to-let deals are competitive but a broker can help you get the best deal.
It is important to factor in borrowing costs, management fees and maintenance costs.
You will need to try to keep your costs below your rental income. Its best to write off a months rent for times that the property may be vacant and up to two months for maintenance of the property.
You will need to pay out for mortgage arrangement costs after your fixed term or suffer the costs of the ongoing variable rate
If you have a leasehold property you will need to pay a yearly ground rent and likely a maintenance charge.
If an Estate Agent is managing your property they will require fees to set up the tenancy and ongoing “management charge”
Your responsibilities as a landlord
There are many responsibilities that come with being a landlord.
You are legally required to keep a deposit in an approved deposit scheme which offers security for both tenant and landlord. There are three approved schemes to choose from. These include The DPS (deposit protection service), The TDS (tenancy dispute service) and mt deposits. You must supply a tenant with a host of information, such as the name of the authorised scheme you are using, how they will apply to get the deposit back at the end of the tenancy, an explanation of the purpose of the deposit and what to do if there is a dispute.
By law, you must have gas and electrical equipment checked annually by a registered engineer and a Legionella risk assessment carried out. You must also pay for an energy-performance certificate, although this is only required when marketing a property for rent.