Have you come to the point in your life where you’ve decided that it’s time for you to start investing in property? If so, you may be feeling a little overwhelmed. However, this is not uncommon. Deciding to invest in property can be scary and exciting at the same time. That said, many things are worth considering before diving into the world of buy-to-let.
So, what are you waiting for? Get started with these simple steps today! Here are some tips for potential buy-to-let investors that will help you make smarter decisions when making your first purchase.
What Your Obligations Are As A Buy To Let Investor
As a landlord, you have certain obligations and responsibilities to adhere to. There are many things landlords should be aware of before making their purchase, including:
- You must ensure that your property meets the standards required for such properties.
- As a landlord, you may be liable for any repairs that need to be done on your property. This can include anything from something as small as replacing a broken windowpane to repairing the entire roof if it has been damaged by a storm or another form of natural disaster.
- You may also be required to pay council tax on the property.
- You must register with your local council as a landlord first thing when purchasing your property; otherwise, you may not be able to rent out the property successfully.
- It is crucial that you research which areas are most lucrative for buy-to-let properties to make sure that your purchase will not go down in value too significantly during the period of your investment.
- If there are any covenants against this type of investment on the land where your house is situated, you need to speak with them before making any purchase agreement to know what is coming up.
Financing Options
One of the first things you should do when looking for a property to buy is figure out how to finance it. Financing options are not limited to loans from banks; there are other options that you may want to consider.
The first option that comes to mind is a mortgage loan. Many different lenders offer mortgages and usually require a deposit of 10% at least. Mortgage rates vary depending on your credit score, income, and the type of loan you apply for. The interest rates can range between 4-6%, reflected in your monthly payment.
Additionally, mortgages often have conditions that must be met before the funding is available, including waiting periods or requirements for employment, so getting pre-approved for this type of loan ahead of time is always recommended.
Another option would be cash purchase with private lending. If you have enough savings or liquid assets to put down as the down payment, many private lenders offer competitive rates on these types of transactions.
Lastly, seller financing is an option that is often overlooked but gives buyers more flexibility and creative control over their property purchases and what they can afford. This method allows buyers to negotiate terms like initial deposit and interest with sellers. Bridging loans are also an option, along with construction loans for any additional work you may need to carry out to make it habitable or allow you to increase the rental income on the property.
Know The Yield of The Property
The yield of a property is the annual income that it generates. When you invest in property, you want to ensure that the annual revenue it generates will cover your mortgage and other associated costs.
Figuring out the yield is not as straightforward as it may seem. You need to consider how much rent you can charge, what service charges there are, and how much money you’ll need for maintenance and repairs.
For example, if you want to buy a £200,000 property as an investment, your mortgage costs would be around £6,000 annually. Your rental income would have to be at least £14,000 per year for this property to be profitable. This means that if you wanted to cover all your costs with one tenant and the tenant only paid £1,500 per month in rent, you would still lose money on this purchase.
To avoid these types of mistakes when calculating yield, always calculate before considering the cost of renovations or repairs that might need to be made on the property.
Learn The Rental Market In Your Location
Before you even think about buying property, you need to know the rental market in your area.
First, find out what price range is popular for rentals in your area. You can do this by looking at listings or ads for available properties and seeing typical prices. After you’ve done this, it’s time to look at the vacancy rates in your location. This tells you how competitive the rental market is and if there’s a lot of demand for rental properties in your area.
Understanding what rent prices and vacancy rates are like in your area before purchasing is important because it helps you make smarter decisions about the correct type of property to buy and what kind of price range may be best.
For example, suppose you’re looking at a neighbourhood with high vacancy rates and low rental prices. In that case, it might be a good idea to reconsider investing there because the competition will likely keep those prices from going up. However, if there are few vacancies and high rental prices, that might be an excellent place to invest!
How You Can Choose The Right Tenant
One of the most important parts of buy-to-let investing is choosing the right tenant. There are many factors to consider when looking for tenants, such as credit rating and references. However, there are a few more things that you may not have considered that will help you make the perfect decision.
The first thing to remember is to use an agent or letting agent. These professionals have access to many different properties and can help you find a property that meets your needs. They also have access to many information about potential tenants and can provide a detailed report on any individual they think would be a good fit for your property.
It’s also worth considering getting an inventory done before looking for tenants. This way, you can better see what needs fixing or upgrading your property before finding someone who wants it!
