10 Points You Should Consider When Buying a Property to Let
So you’re thinking about buying a property to let. Buy to let is a sensible investment that delivers a good financial return… but only if you tick all the right boxes. Get it wrong and you might find yourself with an expensive white elephant that you can’t rent out for enough money to cover the mortgage loan you’ve taken out, a liability rather than something that puts you at a financial advantage. Here are 10 points to consider when buying a property to let.
Research everything!
This is a serious business, so research absolutely everything, from street level stuff like crime rates in the area you want to buy in to the reputation of local schools and the ease of it’s transport links. You will need to have a good idea of the achievable rents in the local area and so in this case knowledge is definitely power.
Location, location, location…
They say it about commercial property. But location also matters when buying residential property to let. Buy in a cheaper part of the country and you might find the rental income you can achieve just isn’t good enough. You can let a one bedroom flat in some parts of remote Devon for £300 a month, but wages are correspondingly low in the area. The same flat would cost £1600 a month to rent in London, but the price of purchasing the property itself might place it out of your reach in the first place. It’s all about balance. The idea is to find a good value property in a location where there’s a strong demand for rentals, and the right level of rental income.
There’s more. Do you really want to buy to let 300 miles from where you live? Plenty of landlords buy close to home simply so they can visit their tenants with ease, walk or drive past regularly, make sure everything’s OK and fix problems fast without the pain of having to drive for hours.
Putting the lid on your personal feelings
This is probably the most challenging thing of all, especially when you love looking at, buying and decorating property. Remember you are not buying a home for yourself. In this context your likes and dislikes don’t actually matter, so put them aside. It’s all about cold, hard finance. Buying to let is not a love thing, it’s the opposite. Buy sensibly, buy well, buy a place that you think will fly off the rental books no matter how much you personally dislike it.
Will the achievable rent cover your expenses? And how about a profit?
The rental yield is really important. Obviously you want to earn at least as much as your monthly loan repayment, ideally a good deal more. It’s no good buying a place with £500 mortgage repayments every month when your rental income is £400 a month, and it’s equally unwise to leave yourself with no spare fat, a rental income that’s so close to the bone it doesn’t cover the extra expenses you’re bound to have at some stage or another. If you want to make a decent profit, make sure you can charge a high enough rent to provide a reliable margin month after month.
Know your tax landscape
Did you know about the changing UK tax rules? Landlords already can’t claim all their mortgage interest against income tax on rent. But in 2020 the tax break will disappear altogether, replaced by a 20% tax credit on mortgage interest. For the 2019-20 tax year, this means as a landlord you can claim 25% mortgage tax relief. In the 2020-21 tax year you won’t be able to deduct mortgage costs from rental income any more, instead getting a 20% tax credit against your mortgage interest. You’ll have to add your rental income to your ordinary income and pay tax at the appropriate level, then claim tax credit back later. Will the new rules push you into the 40% tax bracket, or above it? If you earn between £100,000 and £123,000 a year including rental income, you’ll be paying 60% tax on that.
Refurbishment and maintenance costs count
You want to get the best possible rental income. And that means the place needs to look super-smart at all times, modern and clean, well looked-after and properly maintained. It’s as much a health and safety issue as it is an aesthetic one – you have to abide by a slew of strict health and safety regulations as a landlord, and they’re not always cheap to keep abreast of. Make sure your rental income is adequate enough to cover maintenance disasters and emergencies.
Shopping around – And chilling out!
Buying a property is one of the most exciting, thrilling things you can do. But you need to shelve your excitement and chill out. This is a commercial decision, a business decision, and you won’t make a good enough job of it if you let your excitement take over. Take it slowly. Create a spreadsheet so you can keep track of the attributes of all the different places you’re viewing. Never act on impulse. Do all your research, all your due diligence, on every single property you view. Speak to local estate agents who know the area well, it is likely they’ll be able to provide you with some real good insight about the local property market.
Decide on your ideal tenant beforehand
It makes sense to spend time thinking about who your ideal tenant is, and buying with them in mind. Do you want to let to a family, a couple, someone without kids or pets? Buy accordingly and you’ll stand more chance of meeting your goals.
Buy to let mortgage rates can be high
Buy-to-let mortgages work in the same way as regular mortgages, but the fees and the interest rates are usually higher this is because buy to let reflects an entirely different risk to the lender compared to an ordinary purchase by an individual. In fact the minimum deposit for a buy-to-let mortgage is usually at least 25% of the purchase price, and can be as high as 40%. This isn’t something you want to enter into without very careful thought. Can you afford a loan like that? What happens if your tenants refuse to pay rent for months on end? Could your finances cope?
Haggling on price gives you an advantage
How much? As a buy-to-let landlord you are at an advantage compared to ordinary domestic buyers. You don’t have a chain hanging over your head, a chain that can break and destroy everyone’s plans in an instant. Because you’re not part of a chain, you are at less risk of the sale falling through, and that means you might be able to negotiate a discount. In a competitive world where profits are not always easy to find, the less you pay for the property in the first place, the better.
Once you’ve considered all of the above you should be in a really good position to make a sensible buy to let decision that’ll see you right for years to come and deliver plenty of profit.
Regulations
There are a number of regulations you will need to abide by if you plan to become a landlord. These might include health and safety regulations, obtaining the correct landlords insurance and more.
If you are looking to purchase a Buy to Let property in the London Borough of Hackney you should make yourself aware of local regulations like selective licensing, more information can be found in our blog post on selective licensing.
Oakwood Estate Agents are perfectly positioned to help landlords purchasing Buy to Let property in the London borough of Haringey, Hackney and Islington. Get in touch with a member of our team on 0207 249 100.
About the Author
Andy Loizou Manager
Andy began his career at Oakwood in 2000 as a trainee negotiator and as a consistent top performer he was promoted to Branch Manager in 2006. Andy has a passion for property and is knowledgeable on all aspects of sales and lettings and is always available in the office to talk to customers.
