I was talking with a prospective landlord the other day (who is an avid reader of my blog) and he was seriously considering investing in Buy-to-Let and was concerned about the tax liability changes that have recently been introduced as well as the do's and don'ts when finally taking the plunge.
Buy-to-let is still attractive and despite some of the uncertainty around the London market and the National market as a whole- Bricks and mortar still have the allure for those with little faith in stocks and shares. Below are my top tips for would be investors and those wishing to extend their portfolios further.
1) Learn about the pros and cons of Buy-to-Let
In the days of the property market boom pre-2007 interest rates were rising quite aggressively year on year and this was hitting the margins of investors. In the crash that followed in 2008/9 rates had hit rock bottom and buy-to-let landlords were thrown a much needed life line. Soon after the EU referendum, The Bank of England slashed rates a further 0.25% to the lowest level ever and they have stayed there since. With renting now the norm for many, rents generally rising with inflation, the prospect of buy-to-let is attractive.
In the days of rising interest rates putting your money in an account for a period of 2-5 years with a fixes rate of interest, out preformed many other offerings in the market place. Better still, investment in stocks and shares wrapped in an ISA meant you can get Capital Gain tax free as well as having the option to sell it on quickly to liquidate the investment. The downside is that you can't take an under performing investment in stocks/shares, renovate it and create value.
Its always useful to speak to people you know who have invested in buy-to-let to give you the full story - both good and bad- the more research you do - the more informed a decision you shall make.
2) Choosing an area
Most investors tend to buy local to where they live, on average, 50-60% in fact, on the basis of familiarity and what makes practical sense if self-managing. There are important questions to ask- what is the appeal of your local area? Are the transport links strong? Are there any highly regarded schools?, for example. There is an emerging trend for investors purchasing in areas that have undergone regeneration-prices are generally more affordable, which also make the numbers stack up.
3) Do the maths
Its vital to get solid evidence about what are the realistic and achievable rents for the area/type of property you are looking to invest in. The cost of finance will also have a bearing on your decision, some of the best deals have high arrangement fees. Remember that markets work in cycles, the local market may slow down at points in the year and you have to factor in void periods ( average 28 days) and the maintenance of the property, therefore make sure you can ride the storm.
4) Get the best deal
The cost of finance is crucial in the decision making process- there are a vast range of products on the market and my advice is to speak to an Independent Broker and take your time to get as much information as possible to give you the best available options at the time. It's worth remembering that everyone's situation varies, therefore, the finance is about matching your requirements with the criteria of the lender. In the current market, it's probably wise to go for a fixed term deal as it will help you to consolidate your finances and provide a buffer for future rate rises- as they will happen. A good Broker will also have access to certain products that you wont be offered as a retail customer who walks into a High Street lender.
5) Know your customer
As a landlord your tenant is your customer- depending on what type of property you buy, ensure it's right for the needs of the occupants. If a family house, keep it plain and simple and ideally unfurnished, they are likely to have lots of their own possessions they wish to bring, if students, fittings to be durable but not luxurious, or professionals they want it clean, bright and functional with mod cons in the kitchen.
6) Yield is the yard stick
Fundamentally, you should invest for income. In most cases, buy-to-let mortgages are on an Interest only basis. Where your income provides a healthy surplus, this money can be used for expenses such as professional fees and maintenance/service charges. Over time as rents rise and as the investment matures, the income surplus can be built up over time to either pay down the mortgage or as a vehicle for investment elsewhere. If you decide on disposing of the asset, the capital gain will pay off the mortgage and still leave you with a respectable lump sum. On average, property prices double once every 12 years or so.
7) Look elsewhere
As I mentioned earlier, many investors like to buy locally as it's what they are familiar with and what they feel they can manage. Though buy-to-let is something that you have to do with eyes wide open, so if your local town is not the necessarily the best place to invest, then look further afield. Other locations in University and commuter towns can offer lucrative opportunities for both the student market and the young professionals who often share to make renting affordable. Creating value is the key to investing in property so the decision to buy an unloved 3/4 bedroom house that needs some cheering up, could well be a wise one. Apart from location, condition is the other main factor that has a bearing on price and this is an opportunity to negotiate hard, especially as you have nothing to sell.
8) Look after your tenant
Should you decide to self-manage or appoint a local agent, it's important that a high level of service is given to your tenant. Keeping your property in good condition and being prompt with repairs is also going to help keep your occupancy rates as high as possible. A good tenant will appreciate the value of the service you provide and less likely to leave so that you can avoid the void - the bane of all landlords. In some cases, good relations can even result in recommendations and referrals with some tenants introducing their friends/associates to your property.
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If you are looking for an agent with experience that can help you find the right tenant for your property, then contact me to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based at Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. There is plenty of parking and the kettle is always on.
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact me to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based at Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. There is plenty of parking and the kettle is always on.
Don't forget to visit the links below to view back dated deals and Hampstead Property News.
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