Buying to Let? You Need to Sort These 6 Things First!

19/04/2018

Buy-to-let is a very straightforward concept — you buy a property to rent it out to tenants. It may sound so simple and appealing that you want to invest your hard-earned money right away. However, you should always do your research first.

As with any other type of investment, there are things that you need to consider carefully before parting with your money. Although it can be financially rewarding, there’s also the possibility that your investment may fail.

So without further adieu, here are the things that you need to get sorted first before venturing into buy-to-let.

Be financially prepared

You need to be in a good financial standing when you look for a property to buy and eventually, let out to tenants. To do so, you can either use your own money or take out a buy-to-let mortgage with a cash deposit.

It would be nice if you have your cash to spend, but still, you have to take into account other expenses after buying a property. Buying a property is just the beginning. Once you’re done, you’ll need to deal with repairs, renovations, remodelling, or anything else in between to make the house appealing to future tenants.

On the other hand, you need to be more careful in planning your finances if you decide to take out a buy-to-let mortgage. Remember that the reason you’re investing in buy-to-let is to make money. This means that the rent should be enough to cover all expenses including your mortgage, all while you earn at the same time.

Research the market

This is very important especially for those without experience in the business. Investing in buy-to-let involves committing tens of thousands of pounds for a property in addition to taking out a mortgage in most cases.

People will learn from mistakes, and that’s a fact. But in the world of buy-to-let, making a mistake or failing is something that you wouldn’t want to happen. To help you get started, it’s a must that you keep yourself informed about the market from the inside and out.

Do your research about the possible risks and rewards of buying to let. Your research should involve average property prices and also, read about the latest property and political news that may potentially affect your investment.

The National Landlords Association and Residential Landlords Association are good places to start your research. If you know someone who’s in buy-to-let as well, it’s a good idea to talk and get some advice from them.

Location

The location of the property you’d like to buy and let out to tenants will play a big role in the success of your investment. The first thing that you need to be sure of is that the area needs to have a strong rental demand. Otherwise, the risk of your property sitting empty is high, losing you money in the process.

If you already have a specific location in mind, it’s a nice practice to put yourself in the shoes of your target tenants. Ask yourself what things you are likely to look for in the area. It could be ease of transportation, malls, schools, parks, and a whole lot more.

Remember that it’s not you who’s going to live on the property so you should keep an open mind.

Decide how you want to manage things

Another thing that you need to consider in buy-to-let properties is how hands-on you want or think you can be in managing it. If the property is located within your area, taking care of things yourself could be easier. Besides, self-managing your buy-to-let property has its perks.

For starters, you’ll earn more since you don’t have to deal with letting agents who charge fees for acting as the landlord on your behalf. Another benefit is that you’re able to build a good relationship with your tenants which can lead to them staying longer.

Unfortunately though, being a full-time landlord has its disadvantages as well. One, it’s only possible for you to do so if you have the time. If you have a job and kids to take care of, it’s probably better if you pass the responsibility to someone else. And two, you would have to prepare yourself to give up weekends and evenings on viewings, advertising, repairs, and other emergencies.

It would be wise to get the services of a letting agent if you think you’re not capable or you don’t have the time to fully manage your buy-to-let property. They will charge you a management fee, but that’s at the expense of them dealing with almost anything related to your investment.

It’s totally up to you to decide how you want to manage your buy-to-let property. So weigh up your options and decide on what you think will work best for you.

Legal responsibilities

Regardless of whether you go to an agent or be a full time, hands-on landlord, it’s a must that you make yourself aware of the legal obligations involved in being one. After all, renting out a property is very similar to having your own business which needs to be declared for tax purposes.

There are also other legalities that you need to comply to like assessments and certificates. These can include gas safety measures, energy performance certificates, landlord license (certain areas only), fire-resistant furniture, safe electrical appliances, and a whole lot more.

Some may apply to your area while others may not. Obviously, not complying with these regulations is against the law and could land you with a hefty fine. The consequence may even be worse than a fine depending on the violation so keep that in mind.

Know and prepare for the pitfalls of buy-to-let

Finally, you have to prepare yourself for anything negative that can affect your buy-to-let investment. You should not just be interested in the good stuff like rental yields or capital growth. You should also focus on the negatives.

For instance, interest rates on buy-to-let mortgages may be low at the moment but what if they suddenly go up? House prices can also go up and down at the same. And more importantly, laws and regulations surrounding buy-to-let properties can change against you.

This is not to scare you from investing in buy-to-let properties but rather, to let you know how important it is to have a backup plan.

Is it right for you?

Once you have these points researched and sorted, you should be in a good position to decide if buying-to-let is the right choice for you.

The potential monetary gain can be very attractive, but getting a good idea of what buying-to-let will look like for you and your family is a more sensible approach.

If time is the main issue, using a managed letting service will enable you to still buy-to-let without the hassle.

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