In part one we considered the benefits of buying to let in principle. Here we consider some practical elements:
Attitude: Buying to let is a long-term investment. So don’t over-stretch yourself, because if you had to sell in the short term you would almost certainly lose money.
Choose well: Follow your head not your heart. Take advice as to which property would represent a sound letting proposition. Is there a strong market in your area? What returns can be expected? What is the saleability of your proposed investment, because one day you may look to sell up, so many of the pro’s and con’s you think about a property will be the same ones your future buying audience consider.
The right mortgage: It can be worth increasing the mortgage on your own property rather than taking out a separate Buy-to-Let mortgage on the rental property. Definitely worth speaking to a specialist here. Take advice and do your own research.
Hidden costs: Remember insurance, rates, maintenance and long-term improvements. The biggest unforeseen cost could be a period of vacancy. Nationally, the average void period is reported as 21 days a year*, although seasons will have a bearing on this. In the past 2 months we have spoken with several landlords who are facing a lengthy void period because their tenancy was periodic and the tenants have sought to leave in the month of December, a typically slow period.
Management: You could manage the property yourself or appoint a letting agent, who aside from finding you a tenant will ensure the agreement is watertight, and collect references and rent and ensure that you are fully compliant legally with the ever growing number of rules and new legislation.
Insurance: You may require special insurance, and as a landlord you have additional responsibilities such as compliance with various safety regulations. Check (with your proposed lender/insurers) if you are required to have a minimum / maximum fixed term tenancy in place at all times.
Tax: Rental income is taxable but mortgage payments are currently only partly deductible, soon to be phased out when the new rules come into effect next year. Any profit you make when you sell the property might also be liable to Capital Gains Tax, so you may consider putting the property in joint names to take advantage of two personal allowances. You may also want to look at buying the property through a limited company. Certainly speak to an accountant before you embark!
Please feel free to call us for a chat if you would like to investigate buy-to-let opportunities in this area.
*Source: Association of Residential Letting Agents (ARLA)