BUYING YOUR FIRST RENTAL PROPERTY : MY TOP TEN TIPS by Steve Nelson
W L PROPERTY
Buy-to-let has been under the spotlight recently but many still see property as a great investment . At a time of low interest rates and stock market swings , the property market has remained buoyant on The Wirral which has encouraged more investors to snap up property in the hope of its value rising .
As an income investment for those with enough money to raise a deposit - buy-to-let is appealing . Mortgage rates at record lows are helping buy-to-let investors make deals stack up , however , if you are considering investing in buy-to-let it ’ s essential to do things right . Whilst interest rates are at a record low , one day they must rise and you need to know your investment can stand that test . There is also a tax rise coming , as buy-to-let mortgage interest relief is axed and replaced with a 20 per cent tax credit . Additionally , from April 2016 landlords now have to pay an extra 3 % stamp duty on property purchases . Despite the tax changes and potential for mortgage costs to rise , there is an increasing demand from tenants and with the expectation that rents should rise with inflation many investors are still tempted by buy-to-let . Like any investment , buyto-let comes with no guarantees , but for those who are looking to bricks and mortar , here are my top tips :
1 . Research the Investment Market If you are new to buy-to-let , do you know the risks as well as the benefits ? Could your money perform better elsewhere for example a fixed rate savings account ? Interest rates are low , but investing in buy-to-let means tying up capital in a property that may fluctuate in value . Your will often be committing thousands of pounds to a property and typically taking out a mortgage . When house prices rise , this means it is possible to make big leveraged gains above your mortgage debt , but when they fall your deposit gets hit and the mortgage stays the same . Property investing has paid off for many people in terms of income and capital gains but it is essential that you go into it with your eyes wide open , acknowledging the potential advantages and disadvantages .
2 . Do the sum Buy-to-let lenders typically want rent to cover 125 % of the mortgage repayments and many now demand 25 % deposits , or even larger . Before viewing property work out the cost of the house and likely rental income . Once you have the mortgage rate and likely rent sorted then you must be thorough in deciding whether your investment will work out . Don ' t forget to factor in maintenance costs and any unforeseen costs for example if the property is vacant for a month .
3 . Explore your options to secure the best mortgage Do not just walk into your bank and ask for a mortgage . It sounds obvious , but banks will normally only sell their products and it is one of the reasons they make billions . It is advisable to speak to a good independent broker when looking for a buy-to-let mortgage . They can not only talk you through what deals are available but they can also help you weigh up which one is right for you and whether to fix or track .
4 . Choose a the right area The right area does not necessarily mean the most expensive or the cheapest . The right area means an location where people would like to live , so demand will be higher . This can be for a variety of reasons , for example ; closeness to town or the city centre , catchment for schools or availability of transport links and ease of commuting . You need to consider what the people who would live in the property in a certain area would choose and match that with what you can afford . People tend to invest in property close to where they live , this is because they know this market better and can spot the kind of property and location that will do well . However looking for a different type of home in a different area might be a good move .
5 . Think about your target tenant Often investors imagine whether they would like to live in their investment property , instead of this put yourself in the shoes of your target tenant and their needs , this will help secure a property which is highly sought after and likely to attract a longer let with minimal vacant periods . For example ; if it is a family they will have plenty of their own belongings and need a blank canvas . If they are young professionals it should be modern and stylish but not overbearing and be near to transport links .
6 . Go for rental yield and remember costs There are a lot of people who have made a lot of money from multi-million pound buy-to-let portfolios but while you may expect long-term house price rises , it is advisable to invest for income not short-term capital growth . When comparing different property ' s values use their yield : that is annual rent received as a percentage of the purchase price . For example , a property delivering £ 6,000 worth of rent that costs £ 100,000 has a 6 % yield . Rent should be the key return for buyto-let . Don ' t forget tax , maintenance costs and other landlord expenses that will eat into that return . Once mortgage , costs and tax are considered , you will want the rent to build up over time . This could be used as a deposit for further investments , or to pay off the mortgage at the end of its term . You will have benefited from the income from rent , paid off the mortgage and hold the property ' s full capital value .
7 . Consider renovating a property Looking at properties that need improvement is a way of boosting the value of your investment . Dated properties or those in need of renovation can be negotiated on to get at a better price and then spruced up to add value . This is one way that it is still possible to see a solid and swift return on your capital invested . If you can add some value to a home straight away then it gives you a greater margin of safety on your investment . Remember to make sure that the price is low enough to cover refurbishment and some profit and that you allow for the inevitable over-run on costs .
8 . Negotiate over price As a buy-to-let investor you often have an advantage when it comes to negotiating a discount . If you are not reliant on selling a property to buy another , then you are not part of a chain and therefore there is less chance of a chain collapsing and a sale falling through which will appeal to a seller . It is also useful to find out why someone is selling . An existing landlord that is cashing in may be more willing to accept a lower offer for a quick sale than a family that needs the best possible price in order to move .
9 . Know the Drawbacks Before you make any investment you should always weigh up the negative aspects as well as the positive . House prices are increasing at the moment but growth has slowed . If property prices dip or mortgage rates increase will you be able to continue holding your investment ? Even in the most desirable areas , new tenants often have to give notice of one month to leave their property which means your property sits vacant without a rental income for that period . One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year . Don ’ t forget the maintenance , if you do not have enough to cover a repair to your property , such as a new boiler , do not invest yet .
10 . Consider how involved in the day-to-day management you want to be Purchasing a property is only the first step . Investing for the first time can be daunting and the worry of tenant problems or emergency calls in the early hours of the morning can be off putting . You will need to find a tenant and then decide if you want to manage the tenancy . Using an agent is always advisable as they are the experts in their field . They will charge you a management fee , but will deal with any problems , process rents and ensure your property complies with current safety legislation . You may more money doing this yourself but be prepared to give up weekends and evenings on viewings , advertising and repairs . If you are considering going it alone look at where you will advertise your property and where you will get documents , such as tenancy agreements from . Make sure your property is a nice place to live and try and build a good relationship with your tenants . If you look after your tenants , they are more likely to look after you , which will minimise any void period .
For more advice on investing in Wirral property , contact our expert Steve Nelson at Constables who will guide you through the process and help with your property search . wirrallife . com 39