Taking out a buy to let mortgage and becoming a landlord can be a great way to invest and save for your future, but there are plenty of risks you should be prepared for, too. If house prices rise and your tenants are reasonable, renting property can be a great way to earn money. There are however some negatives that you should be aware of and plan for to ensure that your ratio of risk to return remains manageable. Contact us today at iam mortgages if you need extra guidance from our mortgage advisors. Below are our top tips on buy to let mortgages.
Do your homework
You can never do too much research when it comes to buy to let mortgages – after all, becoming a landlord is an important decision, and carries great responsibility. Research the type of property you intend to purchase for renting. Note the area it is located in and consider whether this may help or hinder your chances of obtaining a buy to let mortgage. Also consider what would be attractive to a tenant in terms of area and the property’s facilities. Would it suit a family with young children? A couple looking to start a family? Or young professionals? Think about how you’d like to decorate the property to make it appealing to a tenant, and put aside some budget for renovations and maintenance costs. Is there any work that needs to be undertaken before you can rent the property?
Check your finances
When you start considering buy to let mortgage offers from lenders, examine how much your monthly mortgage costs will be and weight them up against the monthly income you expect to make from renting the property. Consider times when you may not be able to secure a tenant, or may have rental voids. To give yourself some financial security, you should always have a fund in place that is a good 6 months’ worth of mortgage payments to ensure that you can meet your payments. For more advice and ways to safeguard yourself from unexpected costs and rental voids, speak to our expert team at iam mortgages by submitting a query form.
If you are a landlord, you spend a lot of time managing and looking after the property that you rent out. While you can pay an agent to do some of this work for you, this will take a considerable chunk out of your monthly earnings if you decide to do this. You’ll need to ensure that the property is in good condition at all times, with no presence of damp or other construction issues. You’ll also need to ensure that the property’s appliances are in good working order and that the property is properly connected to all utilities. You should make sure that you are available to your tenants whenever they need you, and will also need to spend some time managing your financial records.
Paying your tax
Any profit you make on rental income received from tenants will be liable for income tax. You can save on your tax bill by offsetting maintenance costs such as water rates, ground rent, letting fees, legal fees and insurance costs against the rental income you get from tenants. It is best to speak to an accountant who can best advise you on tax and letting property.
The legal paperwork
By law, when you take a deposit from a tenant, you must put it in an Assured Shorthold Tenancy (AST) scheme. This way, if you have a dispute with your tenants, the deposit is protected for you until the matter is resolved. For more information, visit www.gov.uk/deposit-protection-schemes-and-landlords. You should also be aware of yours and your tenants’ legal rights and familiarise yourself with the law before renting out a property.