Buying Your First Buy-to-Let Property
If you’re considering dipping your toe into the water of property investment, you need to know the pros and cons, because like any investment, buy-to-let comes with no guarantees.
Why buy-to-let is currently a good investment option
In the present climate, mortgage rates are low and the demand from tenants high. That makes rental property an ideal place to look for additional income as rents should rise with inflation, and sharp interest rate increases are unlikely.
But if you’re tempted by buy-to-let it pays to do your homework first.
The value of research
If you’re new to buy-to-let, you need to do your research to ensure you fully understand the market you’re getting into – the more knowledge you have, the greater your chances of success.
Capitalising on buy-to-let property means investing a large sum of money and usually entails taking out a mortgage. When house prices rise, you enjoy the gains, but when they fall your mortgage stays the same, and you may find yourself in a position of negative equity.
However, typically, property investment reaps handsome rewards from both income and capital gains, but you must go into any business deal being aware of all the advantages and disadvantages.
As a starting point, seek out people who have already invested in property and learn from their experience.
Find the best mortgage deals
As well as speaking to independent brokers, you should also do your own research when it comes to taking out a buy-to-let mortgage.
There are some great deals to be had, at low rates, but you need to know what your future plans are before you decide to fix, track or when to fall onto a standard variable rate.
Fees on some of the best deals can be high, so you need to factor this into your equations. What a lender is ideally looking for is a satisfactory deposit and a healthy potential rent to cover mortgage payments.
Improve your sales negotiation skills
Remember, when negotiating the purchase of a property, you’re in an excellent position as a buy-to-let investor. Hopefully, you’re not reliant on selling a property to buy, which means that as you’re not part of a chain, there’s less risk of the sale falling through.
You should leverage this advantage when putting in an offer. Use it to negotiate a discount and don’t be dissuaded from making a low offer.
Another negotiating skill is to know your market. How long are houses taking to sell in the area? Why is someone selling a property and how long have they owned it? A landlord selling a rental property to cash in their capital gains may be more willing to negotiate than a homeowner who needs the highest possible price before they can move.
You should be making use of all relevant information when weighing up how much to offer, when to put in an offer and when to wait until the time is right.
How to source trustworthy tenants
Once you’ve secured a property, your next step is to find a suitable tenant.
A trustworthy tenant will pay the rent on time, keep your property in good condition and hopefully rent from you for a while, so you don’t end up with void periods. To find this ideal tenant, you need to be thorough with your background checks.
First, it’s essential to assess a tenant’s ability to pay the rent, which is why you will need to ask about their employment and to see their past three months’ bank statements or pay slips. Credit reference agencies can offer tenant checking services that will reveal if they pay their bills on time and references from previous landlords and employers are always advantageous.
If you feel uncomfortable undertaking these checks yourself, then you should appoint an agent. You can pay a full management fee and have the agency handle all maintenance issues as well as sourcing and referencing tenants. The agent will also carry out regular inspections of your property to ensure it’s being suitably maintained.
However, a full management contract will eat into your monthly rent income. Instead, you can choose a tenant find-only service, which could include referencing checking.
One point to note is that as of 1st February 2016, the government’s Right to Rent scheme went live across England. This requires landlords or agents to check ID of all prospective adult occupiers. In a situation where an adult occupier has a time-limited right to remain in the country, landlords and letting agents need to conduct follow-up checks. These need to be made 12 months from the initial check or at the expiry of the individual’s right to be in the UK, whichever is the later.
Since 1 December 2016, landlords have been able to obtain a notice from the Home Office to end tenancies for occupants with no Right to Rent.
Would you like to find out more about entering the buy-to-let market?
Our next Property Foundations Course is a three-day course that will help you to understand the different property investment strategies that you can use in today’s property market.