Want to make easy money? If the answer is yes, then buy-to-let isn’t for you; but if you are prepared to work hard, and smart, then it could provide a good investment opportunity.
Buy-to-let isn’t without risks, but with so many people still unable to get on the property ladder it could provide a stable revenue stream. Often entrepreneurs make the mistake of getting into the property sector without taking into account the problems, risks and issues that can happen and then soon realise their costly mistake.
If you are thinking of becoming a buy-to-let entrepreneur, here are some of the things you should take into consideration first:
Few can afford to buy properties without taking out some sort of loan or mortgage. Many banks will offer specialised mortgaged aimed at buy-to-let investors, which is normally the best option, however it is still advisable to look around and see what other loans and mortgages are available. Also be careful about how much mortgage you take out, many people who invested in buy-to-let during the last property boom ended up losing money on properties that were in negative equity which they struggled to rent out at a price that would cover their repayments. As well as this take into account that buy-to-let mortgage rates may rise, even if standard mortgages don’t.
When looking for a buy-to-let property keep in mind the sorts of tenants you want. If you are aiming at students you will probably opt for something with a minimum of four-bedrooms that is clean but basic. Alternatively, if you are aiming at young professionals you will be more likely to go for something that is modern and trendy, but which doesn’t require much daily upkeep. Properties aimed at families, however, often are easier to rent if they have lots of storage and has access to a garden.
You’ve also got to keep in mind that as the landlord you will be responsible for the maintenance of the property. This will impact on the type of property you buy, as there is no point in purchasing a cheap property only to have to keep paying for repairs. Even if the property is in good condition there will always be maintenance issues that arise, as such many landlords choose to recruit professional property maintenance companies that will take care of any problems or repairs that need to happen. It is important that you factor maintenance costs into your finances before taking on a buy-to-let property.
Location is just as important for buy-to-let properties as for your family home. The location of the property will determine the type of tenants who will be interested in renting it, so if you’re targeting students you obviously need to choose somewhere close to a university, while professionals usually look for city properties close to train stations. The right property investment might not even be one close to where you live, for example if you are based in the east of England don’t discount purchasing a property in the west, as this could be a better investment for you.
Empty properties and other costs
Renting out a property is great, until you have no tenants. There are many reasons why your property will be empty – a gap between tenants or the end of term, for example. It is important, therefore, that you factor this into your finances so that you have enough money to pay bills and mortgage or loan repayments even when there is no rent money coming in.
You should also make sure you factor in other additional costs early on. Letting agents and solicitor fees, for example, can be expensive but are often necessary to successfully rent a property. On top of this, you will need to keep up with legal and taxation changes that impact landlords, as well as what to do when you have difficult tenants.
On the surface buy-to-let can seem like an easy and relatively safe way to invest, however it is important to remember that there are a lot of financial issues and day-to-day problems that come with renting out properties.