During the property boom – remember that? It coincided with the credit boom – buy to let was all the rage as those who had made money on their properties quickly bought up cheap houses to renovate and rent out to earn another income.
And so we are left with the situation today whereby nobody can afford to buy a house and rental prices are through the roof, pardon the pun.
The bottom fell out of the market for a while – which, coincidentally seemed to coincide with the death of the DIY TV show – but falling house prices and rocketing rents means that investors are being tempted once more. But what are the costs involved and is it actually worth it? Let’s take a look…
Getting A Buy To Let Mortgage
Buy to let mortgages work very differently to ordinary, residential mortgages and interest rates and arrangement fees usually a lot higher.
Like residential mortgages, however, you will also need to put down a hefty deposit and this is to protect the mortgage provider from any potential drop in the price of the property.
Being A Landlord
Being a landlord is about more than just doing up a property and watching the cash roll in and you shouldn’t go into it thinking your house is a cash cow as the likelihood is that any money you receive over and above the mortgage payments will, in some way, find its way back into the property and not into your pocket.
You will have to factor in management fees, the cost of annual inspections and specialist landlord insurance and any income you do make is subject to taxation.
And, as a contingency, you need to put money aside in case the property lies vacant for any length of time, in which case you will have to pay the mortgage yourself.
You can insure against this but this is another additional cost so it’s worth giving yourself a buffer in an emergency fund in case the property lies vacant for a couple of months.
Finding A Property
The next thing to consider – and this is the exciting part – is the property you want to purchase and when deciding you need to think about the type of tenant you want to let to.
If you want to rent to a family then you will need to buy a bigger property, probably one with a garden, and need to consider the extra wear and tear on the facilities which means that you’ll have to replace them more often. If you want young professionals then you will need a property with high quality fixtures and fittings and this may require a large outlay before you can rent it out.
If you are renting to low income or students then you can afford to spend less on a property as it will be in a less desirable area but you also run the risk of, without wanting to generalise too much, unpaid rent or damage.
You could save on management fees if you decide to look after the property yourself then it would make sense to buy somewhere that is easy to get to from your home as you will effectively be ‘on call’ for repair or maintenance or viewings while it is on the market.
So you need to decide how much value you put on your time and weigh up whether to manage it yourself or hand it over to, and pay, an estate agent to do this. And you need to keep in mind, as with most investments, you are by no means guaranteed a return on your outlay.
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