If you are considering your first or next investment, there are a few things that you need to keep in mind to ensure your best possible success.
What Is Buy-To-Let?
A buy-to-let property investment is the purchase of a property that is intended to be rented out to tenants. It can generate income through the profit made on the monthly rent whilst also providing capital gains when you decide to sell the property.
Before investing in a rental property you should ensure that rising interest rates will not make your mortgage repayments higher than the rent you can charge. You also need to carefully consider who you rent to in order to avoid being left with tenants who do not pay their rent.
When you invest in a property you need have a plan on where you want to make your money. You need to decide on whether to focus on making a profit through rental returns or capital growth and then use this goal to help decide on which property to buy and where in the world it should be.
High property prices will result in a lower rental yield, so these types of property are better suited to those looking to benefit from capital gains.
Do you research when it comes to how you intend to finance your property, whether you are likely to make a profit, who you are looking to rent to and what your exit strategy will be.
The infamous quote from Benjamin Franklin taught us all that taxation is one of life’s certainties, and this is definitely true when it comes to property investment. The rental returns you receive will be taxed, as will any capital gains that you make. Mortgage interest relief has also been capped, and this reduction will continue on a gradual scale until 2020.
Changes in 2016 have meant that a 3% stamp duty tax is applied to buy-to-let properties costing over £40,000.
Location, Location, Location
The location of your investment property is key to reaching the goals that you have set yourself. You should consider whether you are looking for a city centre location or something further afield and whether you intend to manage the property yourself or hire an agency.
You also need to consider whether you plan to redevelop a property which could be snapped up at a low price, whether you aim to buy an easy to let new build or if you prefer the assured rental periods of buying off-plan.
Becoming a landlord makes you responsible for a lot of things from ensuring a tenants deposit remains safe and their rights to live in your property are protected. An Assured Shorthold Tenancy (AST) outlines the rental costs and the date those costs should be paid, who is responsible for repairs, what could trigger an eviction, whether rent can be increased and how long the tenancy lasts.
Deciding who you want to rent to is vital in deciding what property to buy. Are you looking for a student, a family or a holiday-maker? When you know who your preferred tenant is likely to be then you can make an informed decision on what to buy and where it should be.
Every investment has the possibility of risk as there are financial and legal commitments that need to be tightly managed. Property investment requires a lot of time and resources which you need to be prepared to give if you want your property investment to be a success.
You need to keep a close eye on interest rates and how they could affect your investment. You also need to keep on top of the maintenance of the property and be prepared for the costs that this may incur. You also need to consider how you will manage if the property is vacant for any period of time.
Buy-to-let mortgages can be complicated so make sure you have a good understanding of what they involve. This will allow you to shop around for the best deal, and one that suits your goals. You need to ensure that you select one that is suitable for your deposit, that the interest rate is not higher than the potential rental yield and what fees are incurred.
Few investments are for life, and with this in mind, you need an exit strategy. Your exit strategy will depend upon your personal situation and the associated tax consequences. You may wish to sell all or just some of your portfolio, or keep hold of everything to pass on as inheritance.
Buy-to-let properties can be a great way to invest your money, but they have as much potential for failure as success if they are not planned and researched in the right way.
For more information on investing in buy-to-let property, please check out our comprehensive buy to let property investment guide.