The Buy-to-Let market is doing very well. As a long-term investment, more and more people are putting their money into a second home. Even though the idea sounds good, there are a few things that could go wrong that need to be thought about. Follow the steps below to make sure your "Buy-to-Let" investment works out well.
#1: Pick the Right House
It's very important where you live. Talk to a few rental agents in the area to find out what's available and what people want. Look at things like whether there are jobs or a university in the area. The Association of Residential Letting Agents can give you information about letting agents in your area.
#2 Get the Best Mortgage
You'll need to talk to your lender to find out how much you can borrow. Most lenders will let you borrow up to 85% of the value of the home. Also, when deciding how much to lend, most lenders will take the expected rental income into account. Make sure that the rent you get from your property covers 125% of your monthly mortgage payment.
#3: Figure out expenses and income
Find out how much your monthly mortgage payment will be and if the rent you expect to get will be more than that. You can find out if this is possible by looking at the rental prices of similar homes in your area that are advertised in newspapers. Check to see if you could still pay your mortgage if interest rates went up and the house was empty for 3 months.
#4 Consider Hidden Costs
You will have to pay for the services of a lawyer, an estate agent, building insurance, a mortgage, stamp duty, and maybe even service charges and ground rent.
#5 Plan for recurring costs
You are in charge of making sure that the property is safe and healthy. Local governments want you to follow fire safety rules, which could mean putting in fire doors and smoke alarms.
#6: Hire a professional property manager
You might want to hire a professional to help you find a place to live. They will find tenants, collect deposits and rent, and set up the inventory and tenancy agreements. But you can expect to pay anywhere from 10 to 18 percent of your gross rental income.
#7: Make sure you have the right insurance
As the owner, it is your job to make sure that the structure of the property, which includes permanent fixtures and fittings, is covered by insurance. You'll need to check your policy because most building insurance doesn't cover buy-to-let properties.
#8 Sort Out Your Tax Position
You have to pay income tax on any money you make from renting out a property, but you can deduct some costs. When you sell the property, you will likely have to pay Capital Gains Tax. Before you do anything else, you should talk to your accountant.
#9: Get a mortgage with a lot of options.
The buy-to-let market is a good fit for these kinds of mortgages. This is because you can change the amount you pay based on how much rent you get.
#10 Think of a buy-to-let property as a long-term investment
Don't think that the rental income and equity gain from the property will help you make a quick profit. You look at the bigger picture to make money. Most of the time, between five and ten years.
