If you’re thinking of becoming a landlord for the first time and are considering taking out a buy-to-let mortgage, there are a number of things to think about. Here’s the iam mortgages guide to investing in buy-to-let so that you can make an informed decision before committing to a buy-to-let mortgage.
What are the positives of investing in buy-to-let?
If you rent a property out to a tenant, you have the opportunity to make some extra income through rental charges. If you decide to take out a buy-to-let mortgage, you’ll borrow from a lender the amount you need to buy a property, and then pay this sum off using profit made from your rental income. A main positive of buy-to-let is that it is a great way to make money, especially if you rent out an attractive property in a sought-after area. This is a great way to future-proof your investment, especially if the property gains value and you decide to sell it in the long-run.
However, there can be some challenges in investing in buy-to-let. Sometimes you might have breaks between tenants and will still need to pay off your mortgage, or may be unable to find a tenant, or you may have issues with a difficult tenant. Being a landlord can take a lot of hard work, but if your property, finances and time are all managed well, it can be both lucrative and rewarding.
Before taking the plunge
Before considering whether to invest in a buy-to-let property, you need to make sure you have the time to actually be a landlord and take on the responsibility of the role. Think about your reasons for renting out a property – is it to increase the profit you’d make if you sold the property (capital gain)? Or are you looking to generate a stable income from the rent received from your tenants? Are you seeing this property as a long-term future investment for yourself (i.e. into retirement)? If you change your mind and no longer wish to be a landlord, selling a property can take a considerable amount of time. No decision to be a landlord should therefore be taken lightly – it is a great commitment.
You’ll also need to research the housing market in the area you intend to rent in. Ask a letting agent, and research property rentals in the area – how much rent are landlords typically asking for? Being mindful of the answers to these questions will help you decide whether buy-to-let is right for you.
Finally, you’ll need to keep an ear to the ground on good deals on buy-to-let mortgages. This is where we come in at iam mortgages. We can help you compare the latest deals on buy-to-let mortgages, helping you find the right mortgage for your circumstances. Call us today or fill in our simple to use enquiry form and a member of our team will get back to you. Even better, our advice is completely free.
What are the negatives of investing in buy-to-let?
There are many financial implications of becoming a landlord that you should prepare yourself for if you are going to invest in a buy-to-let property. You’ll need to have some savings stored up for any issues you have with the property in terms of maintenance. No tenant wants to find damp on the walls, dirty carpets or appliances that are not in good working order. It is your responsibility to keep the property in good structural condition.
Bear in mind too that sometimes things might get tough for you financially. Your property might be unoccupied at times of the year when you cannot secure a tenant. When this happens, you are likely to experience a ‘void’ in your rental income. You’ll need to make sure that this void is covered, and that you still have some money set aside to pay your lender the monthly mortgage payments. If you fail to keep up with your mortgage repayments, your lender could repossess your home.
Finally, it’s also worth mentioning your mortgage rate, which could rise in accordance with interest rates. If you are not sure whether you could afford your monthly payments if they were to rise, you may want to think about taking out a fixed rate buy-to-let mortgage.
How to be a good landlord
To successfully make money from a buy-to-let property, you have to be a good landlord and a savvy home-buyer. This means:
- Finding a property (to rent) that has demand and desirability in a sought-after area.
- Making sure the property has kerb appeal and an attractive, well-maintained exterior.
- Furnishing the property well, in accordance with furnishing regulations, and ensuring that the kitchen and bathroom is well-maintained and presented.
- Finding a property that isn’t going to be a strain on you financially in terms of maintenance (such as a Grade II Listed property).
- Ensuring that you are always contactable and that your tenants can easily get hold of you should anything happen with the property. This may mean being at the end of the phone, even when on holiday. This is a main reason why it might be worth investing in a letting agent – they can then look after the property for you during times when you want to relax and have time away.
- Making sure that you place your tenant’s deposit in a scheme that is protected by the government. This ensures that you are protected against potential prosecution by the tenant for a much greater value than the initial deposit (should any legal dispute occur between you).
- Ensuring that you charge a reasonable rental fee while making sure that this fee covers your mortgage costs and other bills (letting agent fees, utilities, maintenance), etc.
If you need further help or have questions about investing in buy-to-let property and would like to speak to one of our mortgage advisors, contact us at iam mortgages. Our helpful team of experts can advise on subjects like how much rent to charge, how much you can borrow, and how to make a mortgage application. Our advice is completely free, so get in touch now!