More and more people are now living alone, which means more people are renting accommodation. Busy careers and the desire to travel extensively also mean that the average age of first-time buyers is increasing. There are a range of mortgages now available for people looking to invest in property to let. Buy to let mortgages offer home owners the opportunity to purchase additional properties which they can use to rent out to tenants. This additional investment can be used as an extra income or as a future asset. So is buy to let right for you? Take a look at this brief guide and find out how you can get the best return on your buy to let investment.
Why buy to let?
Over time, property is a sound bet for a good return on investment. The home you purchased ten years ago is likely to have risen in value way above the normal rate of inflation and in some cases prices have doubled over that period! Whilst this is not recession proof, over a long term period the normal trend is that property is a good investment.
If you rent out the property, the rent received should enable you to keep up the repayments on your additional mortgage although you may need to contribute to the total amount required to maintain the repayments.
With more people renting rather than buying you shouldn't have much trouble finding tenants, but it’s worth checking beforehand that you're not purchasing a property in an area that already has more supply than demand.
The Shorthold Tenancy agreements now protect you from sitting tenants.
Investment or income?
Essentially, purchasing an additional property is an investment, which means you must decide whether you want to help that investment to grow or use it as additional income. If growth is your primary goal then city centre locations can offer high levels of return. However, as the majority of rental property is concentrated in city centres, competition for tenants is usually higher.
If you're looking to use your rental property as a vehicle for additional income, then consider suburban areas where properties will generally be cheaper and the rent lower, so relative returns are likely to be greater over the long term.
As a new landlord your daily responsibilities will largely depend on the level of responsibility and work you agree with the letting agents. However, as the owner, you'll be responsible for the property’s upkeep, as well as building insurance.
You must also make sure that any gas or electrical equipment passes safety checks and complies with relevant regulations. Remember too, that maintenance costs, such as cleaning, gardening and your agent's commission can be offset against tax.
Risk vs Rewards
Whilst there is no doubt that buying a property to let can be a worthwhile investment option, it is important to remember that buy to let also has an element of risk.
You need to make sure that you keep up the mortgage payments on the property. The rentals market may be buoyant, but you must still consider the possibility that at times you may have no tenants, but you'll still need to pay your mortgage.
You also need to consider the condition of your property. It may well be cheap to buy a place in a run-down area that needs renovation, but it could be expensive to refurbish. In addition, when you look to sell the property in the future, you may not get the return on investment you expected.
As with most investments, it is prudent to look long-term to get the most out of a buy to let property. Housing markets constantly fluctuate with the changing economy, but the trend has often been growth. If you seek professional advice and make the right choices, your buy to let should provide strong returns in the future.
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