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Buy to Let: It’s not as easy as it sounds

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Thinking of getting a ‘Buy to Let’? Over recent years, our TV screens have been awash with programs about buying property for investment purposes; whether it’s to renovate and sell on at profit or rent out as a long term investment. But many people were stung when property values crashed and getting finance was like finding gold dust. However, with the low interest rates, lower house prices and a volatile stock market, many people are now starting to re-invest, believing their money is better off in bricks and mortar than in the banks.

Is it right for you?

If you are one of these people, then ensure you are armed with the correct knowledge before making the commitment. Is it what you really want? Purchasing a buy to let property is a big investment for the long term and if you fall on hard times, getting your cash out of property is much harder than drawing it out of a savings account.

Prices rise and fall, as do interest rates, so while you may be able to afford it at the moment, can you afford it in the future or to have your money tied up for a much long period? If the answer is yes, then you should then look to research the area you want to buy in and who you should market your property at. Check out new railway links or a surge in new-builds in the area, if a near by area is being re-generated or new facilities are being opened; all of these thing can mean that the property you buy may surge in value in the future and be a better investment than paying top dollar in an already established area.

Buy to let: Its not as easy as it sounds

Find your target market

Don’t get personal with your property, remember you aren’t living there so don’t be tempted to decorate it to your personal taste or rule a place out because the bathroom suite isn’t to your taste. Tenants want a blank canvas they can make their own, so remember, it is a business investment.  Consider your market – if you are looking at renting to young families, then perhaps buying a swanky apartment in the centre of town might not be the best choice. Likewise, if you have young professionals as your target market, yet the property you have is in the heart of a great school catchment area, you may want to re-asses and target families with children?

Do the sums

Work out your costs and do it honestly! Throw away the rose tinted glasses and do the cold hard maths. If you require a mortgage on the property, then lenders normally want the rent to cover 125% of the mortgage repayment. Plus most lenders will want a 25% deposit or more. The best deals usually have large arrangement fees and don’t forget the legal fee’s either. Solicitor’s costs for conveyance aren’t cheap, so ensure they are accounted for. Consider what happens if your property doesn’t rent out for several months – you will liable for the mortgage payments so can pay those as well as your other financial commitments? Remember the running costs of a buy to let, property maintenance, agents fees and potentially being called out in the middle of the night to fix a faulty boiler or leaking roof!

What’s the yield?

Calculate what your property can yield. If you pay £200,000 and you earn £10,000 a year rent, then your yield is 5% as an example. Most buy to let mortgages only pay off the interest on the loan, not the amount, so you can either save up the income over time to pay off the mortgage or perhaps use it to invest in other properties. You can choose to get a repayment mortgage but you will incur income tax on the repayment part of the mortgage. Remember, you will also be liable for tax on your investment as the rent you receive will be classed as income, so tot up the costs and make sure it pays!

Buy to let: Its not as easy as it sounds

Do your research

Even though you may feel more comfortable buying somewhere close to home, it may be prudent to look further afield or consider buying somewhere to renovate. If you employ an agent they will deal with the day to day issues and keep an eye on it, so look into buying in an area that makes the most financial sense. If the thought of doing a property up doesn’t scare you away either, then you can often find great places at bargain prices if you are prepared to put in the hard work.

Get the best deal

You will want the final property value to be the purchase price, plus cost of work, plus 20%. Also consider the time to finish renovations as you won’t be able to rent it out while you are doing the work, but if the figures add up, then get stuck in! When buying your property, don’t forget to haggle! With no property to sell and no chain to get stuck in, buy to let investors are often seen as a great buyer, so negotiate on price, make low offers and don’t get sucked into a bidding war or paying over the odds.

Purchasing a buy to let property will probably be one of the biggest investments of your life so is worth doing thorough research so you avoid the pitfalls and make it a success. So as long as you have taken into consideration all of these things, the figures add up and you still fancy the title of ‘landlord’, then purchasing a buy to let property can be a great investment for the future.




About Rebecca Robinson

About Rebecca Robinson

After spending the last 8 years juggling life as a mum of two, wife and working full time as a Project Manager for a global telecommunications company, Rebecca Robinson made the decision to follow her love of writing and took the plunge; turning her passion into a full time career. Since becoming a full time writer, Rebecca has worked with various media and copy-writing companies and with the ability to make any topic relevant and interesting to the reader, now contributes to The Working Parent on articles ranging from credit cards to teenage relationships. Ever the optimist, Rebecca's dreams for the future include a house in the country filled with children, dogs and horses in the field!

Website: Rebecca Robinson

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