Property investment can prove an attractive prospect for many people, with buy to let often offering a return on investment more favourable than the banks. In addition, the recent upturn in the housing market and the prospect of further increases for the foreseeable future, the time appears right for new investors and existing landlords to expand their portfolio of properties.
Whilst the benefits of buy to let are many, there are also several risks and pitfalls; especially for those investing for the first time. By following this simple guide to finding and buying your first buy to let property, you can minimise the traps and begin establishing your property empire!
1) Finance
Picking the perfect mortgage is essential when it comes to financing your investment, with buy to let properties landlords must select a buy to let mortgage. Like residential mortgages the money loaned will be secured against the value of the property, although it will be subject to higher levels of interest. The deposit required is also typically higher usually at around 25 percent; although this may differ slightly depending on the lender.
Although there is no set limit on the amount of money you can borrow through a buy to let mortgage, as a general rule of thumb it is advised that your rental income from the property should be at least 25 percent higher than the monthly repayments. Having a higher rental income can assist in covering the cost of the mortgage repayments during times when the property is vacant or between tenants.
2) The Property
Although you need not have any emotional connection to the property you choose, having a clear list of criteria for it to meet can be helpful. Conduct thorough research into the location you wish to buy, considering transport and road links, which may well be attractive to potential tenants.
The condition of the property is also something to bear in mind; it is important not to pay over the odds for a property as this will result in a lower return on investment. Buying a property that needs work and thereafter undertaking improvements can make a stronger financial investment than buying one already in showroom condition.
3) Securing Return
The return you receive on your investment will depend on the property’s rental yield. The average rental yield in the UK for buy to let properties stands at 5.9 percent, but the amount you can expect to achieve will vary depending on a number of variables, such as house prices and location. Smart investors are now looking away from the nation’s capital to other emerging cities such as Manchester, Liverpool and Leeds, that are establishing themselves as equally desirable locations. Property prices are significantly lower when compared to London and offer buy to let investors a stronger return on investment.
For further advice or information contact Farleys’ specialist residential property team on 0845 050 1958, alternatively please complete an online enquiry form.