Guide On Buy To Let Investment Property
By Irfan M Faruki
Buy to let is an investment instrument gaining considerable interest because of the escalating costs of properties in the United Kingdom. It involves the purchase of a property with the purpose of renting it out. It has gained popularity among amateur landlords and investors alike because of the shrinking property purchase market. Many real estate experts are shifting to this market to service the growing demand for rented properties.
However, when considering property with a view to renting it out, remember that it is a long-term investment and that there may be times when it is left vacant. Be prepared to refurbish a property to some extent but avoid properties that need extensive repairs and renovation. Keep the purchase as impersonal and market-driven as possible.
Here are the positive and negative sides of purchasing for the purpose of the buy to let scheme:
- The buy to let scheme has its advantages, and one of them is the anticipated rise in value of the property which in the meantime is (theoretically) earning its mortgage payments and upkeep through rentals.
- The disadvantage is the inability to rent the property out or to rent it out at a lower rate than the monthly payment.
This is only acceptable for investors with deep pockets and long vision. However, the demand for rentals is expected to double in 10 years, so perhaps the risk is minimal. Typically, buy to let income is about 10%. Another nice thing about the buy to let mortgage in the UK is its tax advantages, wherein the interest and maintenance costs can be deducted from the landlord s income tax.
In the UK, a special mortgage has been made available for buy-to-let investors since the 1990s. Historically, mortgage rates for buy to let properties have been higher because it had been considered a commercial endeavor. Lately, however, because of the lobbying of professional letting agencies, interest rates have become lower. Lenders however determine the amount to be made available to investors in unique ways.
The most popular is using the rental valuation of the property to be purchased. The rent has to cover mortgage payments as well as maintenance costs of the property, so it should ideally be 150% of the mortgage repayment so there is some profit to be had. Another way is through multiples of the investor s annual salary (usually 3 to 3.5 times) plus 50% of the rental income.
In respect of a buy to let mortgage, most of the usual mortgage rules apply. Mortgage overpayment s can be applied to the principal to make interest payments lower, and it is advisable when rental rates are at a premium and the property is gainfully occupied. In case the property becomes vacant for a time, the smaller mortgage payments will help in bridging the gap until it becomes occupied once again. Re mortgaging is also available when mortgage rates become more favorable, releasing equity perhaps for the purchase of another property if market demands make it tenable.
If the landlord is employed or not present, overseeing the investment may become a problem, especially if the property is a considerable distance away. Letting or accommodation agents may be the only way to protect your investment and still keep your job. Listings are available in the Yellow Pages and the local papers. It would be best if the letting agent is accredited with a professional association to ensure reliability and standard of good practice. A list of such associations and accredited lending agents are also available online.
Charges of letting agencies depend on the area and rental of the property. Agents usually take a commission on a successful lease and charge a monthly fee for maintenance and management of the property. This should be clearly established in written form between the landlord and agent. Keep in mind that the competition for such properties in increasing, so feel free to canvass rates for comparable agents.
Letting agents have several functions, such as:
- Most important of all the functions of a letting agency is acquiring and screening potential tenants. Credit and personal references for the prospective tenant is very important, and can take some resources to check out. Letting agents have the resources which an ordinary person does not have.
- They can also collect rent.
- Letting agents can maintain the property and arrange for repairs.
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In drafting the tenancy agreements, ensure that the terms of an assured short hold tenancy (AST) agreement are satisfied. This is to protect both the tenant and landlord. The need for a letting agency also applies to property investors, who may or may not be local.
ABCs of Real Estate Investing - ABCs of Real Estate Investing GuideBy Brad Cra It seems like almost everyone is learning how to cash in and mak...Letting agencies are also a valuable source of advice when considering a property. They will have knowledge about what properties would be good to buy and let and what should be written off. They will also be able to give accurate estimates of rental and maintenance costs, as well as incremental costs for the property.
The important thing to consider in buy to let ventures is that it is an investment, and a long-term one at that. Ensure that the property is rentable and the rental will be able to cover all costs at the very least, including mortgage repayments, letting agent fees, maintenance costs and incremental costs. Make sure you can meet with your mortgage payments or your property might be at a risk of.
Irfan Faruki runs a property investment company http://www.propertysaleforcash.com which specialize in http://www.propertysaleforcash.com
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