In these unpredictable times, it may be worthwhile to start thinking about investing for your future. One way to do this is to invest in the property market. Savings accounts are not as attractive an option as they once were due to falling interest rates so more people are beginning to see the advantage of buying a property to rent out. There are many advantages to this but there are also risks. Here is a look at the process of taking out a buy to let mortgage and whether it is a good idea or not.
Many people make the mistake of pouring all of their savings into several properties and, unfortunately, lose money. The trick is to make one good investment and learn how to profit from it. When choosing a mortgage provider, ensure that you shop around. You can benefit from the low interest rates on offer. Also make sure that you look various areas before purchasing a property. The rental market can be much better in particular places, such as those with a large student population.
Before purchasing, do a quick calculation of the rent you are likely to get and the cost of your mortgage repayments. Your return will be the difference between your annual mortgage payments and your annual rent payments. Work this out as a percentage of your original deposit and then include taxes, fees and any other landlord expenses.
You can make a profit from a buy-to-let property if you choose the right one. You can achieve a regular income from renting your property and it will often provide a more stable and secure income than an investment in the stock market, for example. There is also a chance of making a capital gain if your property increases in value over time.
There are also tax benefits to owning a buy-to-let property. Although the rent you receive is taxable, you can offset the mortgage payments you have to make against it.
What Can Go Wrong
You should also familiarise yourself with the pitfalls of investing in buy-to-let properties. The housing market is unpredictable so if house prices fall you may end up making a loss.
As banks and other lenders consider a buy-to-let mortgage as a higher risk than a typical mortgage, interest rates are slightly higher. Keep this in mind when shopping for mortgages and when calculating potential rental returns relative to your mortgage payments.
There is also the chance that your property will stay empty for a time, leaving you without an income from it. These periods are known as voids and you should factor in a couple of rent-free months when calculating your estimated annual profit.
Being too ambitious when buying property can be dangerous and can lead to large losses rather than profits. This is why you should start with just one relatively inexpensive property to gain experience as a landlord.
Overall, investing in a buy-to-let property can be worthwhile but it is not without its risks, as with most investments. There are measures you can take to avoid making mistakes which could cost you money. Mortgage interest rates are relatively low at the moment but always shop around and compare providers to get the best deal.
Article by Karl – writing about buy to let for MoneySupermarket.com