Managing your money in the modern world means balancing a combination of debt, credit, investments and budgets. The buy-to-let market tends to encompass all of these things, offering the opportunity for a great investment while also challenging a landlord to managing the cash flow required to provide a good quality rental and reserve budget for all eventualities. It’s often thought of as an easy option when it comes to generating cash but the process is much more involved than simply having the capital to purchase a property. Below are eight tips for those looking to get into this market, or improve a current investment.
Tip 1: Is this the right investment for you?
The housing market can be a dangerous place for the uninitiated so it’s important to work out whether this is really somewhere that you want to be. This kind of investment is not easy to access – you’ll be tying up your cash for a significant length of time and there is a possibility that the value of your investment could fall at any moment. It may be that you’re better off putting any money that you have into a tax free ISA, shares or even a simple savings account. What is it you want from the investment?
Tip 2: Make sure you’re on top of the numbers
The buy-to-let profit equation isn’t as simple as buy property-charge rent-pay mortgage-make profit. Make sure you get a mortgage that offers you the best possible deal and remember that most buy-to-let lenders will want your rent payments to cover 125% of the mortgage payments. There are also a whole wide range of costs involved in getting into the buy-to-let market as a landlord – you’ll need to consider initial purchase costs, such as stamp duty, professional fees and paying for surveys, as well as ongoing costs like maintenance and the expense involved in searching for tenants.
Tip 3: Can you afford it?
Remember that, unless you are buying a property that already has a sitting tenant, then you’re going to have to find one. Yes, the rental market is pretty flooded with tenants – rather than properties – right now but nevertheless you might find yourself with a couple of months where the property is empty. If that happens, do you have the money set aside to cover those mortgage payments? You’ll also need to have made provision for the big costs that can come with any property, such as replacing a boiler or insulating a building.
Tip 4: Who is your tenant?
This is absolutely crucial, as you need to aim your property at the potential tenants before you even buy it. What does this mean? Well it means choosing a property in a location you know your ideal tenant would want to live, near amenities they would be interested in and transport connections or parking spaces that they will need. Are you looking to rent to professionals, students, couples or families?
Tip 5: How will you manage the property?
There’s a lot of admin involved in buy-to-let – legal responsibilities that you need to tick off (see below) and dealing with queries from clients about repairs, tenancy renewal and the like. You can pass all this across to an agent, of course, but you’ll pay for the privilege so if that’s your ideal you also need to factor it into the budget.
Tip 6: Are your legal responsibilities covered?
Penalties are getting harsher for landlords who put tenants’ lives in danger or don’t keep up with what the law requires. For example, you must protect the deposit your tenants give you and notify them of the scheme protecting it within 30 days – if you don’t they can take you to court for up to three times the deposit amount, even if you protect it at a later date. An annual gas safety check, regular electrical checks and mandatory smoke and carbon monoxide alarms should also be on your list.
Tip 7: What could go wrong?
You need to consider this before you start your career as a landlord and be prepared for any mishaps that may occur. An empty property is the biggest problem for landlords but you could also have bad tenants and you may have to deal with unpaid rent, eviction and serious damage to your property. You may find yourself pursued by neighbours or the council if your tenants cause a nuisance and you could be prosecuted and fined if your properties are in a dangerous state of repair.
Tip 8: Treat it like a job
This is a business and your tenants are your customers. It’s foolish to look at it in any other way and, as many new buy-to-let landlords are now discovering – that can be costly too.