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#TuesdayTips - Buy-to-let investment tips

Posted 21 February 2017 by Ben Salisbury

Managed well, investing in a buy-to-let property portfolio can reap rewards but there are pitfalls. WhatHouse? offers top tips to buy-to-let success

Anyone who’s tuned into daytime TV or seen an advert before a YouTube video has probably seen a self-styled property guru offering to provide you with details of the secret but simple system which allowed them to accumulate vast wealth in a short time.

Hopefully most people are intelligent enough to realise that property investment is anything but a get-rich-quick scheme. Here are three reasons why this is absolutely not the case and 10 top buy-to-let investment tips to help you begin to understand all that’s involved.

Buy-to-let has been a good investment vehicle for many, particularly compared to low savings rates and helped by historically low mortgage rates, but you need to be able to ensure that your investment can pass the test and absorb the shock when rates do go up, which, inevitably, they will at some point.

1 – Successful property investing takes strategy and real market knowledge to implement

Investors need to have a clear strategy for building and maintaining their property portfolio.

This may be to target a particular demographic (such as students or young professionals), a particular area (such as London and its surroundings) or a particular type of property (such as desirable new build).

Investors must then research their method to get the information needed to make it work in practice and then continue to research to ensure they keep up to date (if not ahead of) market trends to keep their portfolio in good shape.

2 – Successful property investing takes motivation and organisation

Doing proper research takes time and it is not just a one-off activity. As the old joke goes, change is the only constant in the world and successful investors in any area need to make the time to keep on top of all new developments. This means property investors need to be able to organise their schedule to allow time for this research which can mean sacrificing or delegating other activities. This level of commitment takes both motivation and organisation.

3 – Successful property investing generally takes a support team

Successful property investors understand the importance of human relationships and of having a good support team.

From initiating a purchase transaction with the seller, be it through an estate agent or directly with a property developer, to dealing with financing organisations and letting agencies (or tenants directly), to staying on top of legal requirements and managing the financial side of property investment, property investors understand the importance of getting support from the best people and of maintaining good relationships with them.

There are two people in particular that most serious property investors will want to have on their team.

The first is a good lawyer. There can be a lot of legal requirements when dealing with any form of property investment. Using a good lettings agency can mitigate many of these, but it can still be very much in a landlord’s best interests to have at least some level of familiarity with the relevant laws and a source of legal advice if needed.

Good lawyers also prove invaluable when it comes to understanding the key points of leases. While leases for new-build property are generally relatively straightforward, leases for existing property, particularly older property can be much more complicated and it is very much to the buyer’s benefit to resolve any issues prior to the exchange of contracts.

The second is a good accountant. Property investment and taxation go hand in hand. Good accountants will help with statutory compliance matters such as the preparation of rental accounts, the submission of personal tax returns and representation in the event that HMRC makes an investor the subject of an enquiry.

They can also offer consultancy services, on subjects like corporate ownership rather than personal ownership and options for reducing the cost of owning and/or selling property, through tax relief and tax deductions.

Top 8 buy to let investment tips

1 – Do the number crunching before you invest - Make sure you have a big enough deposit to get a better rate on your buy-to-let mortgage. Go through different rate and rent rise scenarios to make sure you can cover 125% of the mortgage. Ask yourself, “could your money do better somewhere else?”

2 – Research the market – Find out about the risks and benefits of buy-to-let investments and if you choose to invest, research the property market to find out which type of property investment suits you best and what the market is like in the area you want to invest in.

3 – Compare to find the best mortgage deal – As with a residential mortgage, it’s vital to research the market and try out a few different lenders to see how much they will lend to you and at what rate. For buy-to-let, it may be worth talking to an independent mortgage market who may be able to provide more insight into what can be a more complicated subject.

4 – Choose the right area – Make sure you choose an area that other people want to live in. Is it good for commuters or families? This will help you choose your target buyer.

5 – Understand rental yield – Buy-to-let investments are not suitable for short term investment goals. You need to work out the rental yield, which is the annual rent as a percentage of the purchase price. So, if a property costs £100,000 and you get £5,000 in annual rent, then the yield is 5%.

6 – The optimum tenant – Think about the type of tenant you want to attract. This will be partly dependent on the type of property you are letting out. If you want a student living there, the furniture should be functional and easy to replace and clean but not expensive. If you want a professional person, make the interior and furniture a bit more modern.

7 – Understand the potential problems – It is not just a case of buying a property and watching the profit come in. What happens if house prices fall and affect the rental market? Remember, there may be gaps between tenants but you still need to pay the mortgage. Can you cover any potential gaps? Also, factor in a cushion in case mortgage rates rise and ensure you can cover an increase in rates of at least two per cent.

8 – Don’t for get to haggle! – Just because it is an investment property doesn’t mean you can’t negotiate on price. You have the same advantages as anyone else when negotiating to buy a property, particularly as you are not relying on funding the property purchase through the sale of another property, so you’re not part of a chain.

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