Part One (Tips 1-5)
For many
buy-to-let looks an attractive income investment in a time of low rates and
stock market volatility.
But if
you are considering investing in property in 2014 - or improving your returns
on a buy-to-let you already own - it's important to do things right.
This is
Money's top ten buy-to-let tips - the essential guide to successful property
investing. (Part One)
If you
are planning on investing, or just want to know more, we tell you the ten
essential things to consider for a successful buy-to-let investment.
Like any
investment, buy-to-let comes with no guarantees, but for those who have more
faith in bricks and mortar than stocks and shares below are This is Money's top
ten tips.
1. Research the market
If you
are new to buy-to-let, what do you know about the market? Do you know the
risks, as well as the benefits. Make sure buy-to-let is the investment you
want. Your money might be able to perform better elsewhere. In recent years a
high-rate savings account would beat most investments. Now rates are lower, but
investing in buy-to-let means tying up capital in a property that may fall in
value.
This
compares to the possibility of a 5% annual return from an income-based
investment fund or 3 per cent on a fixed rate savings account.
Remember
that the return from an investment in funds, shares or an investment trust
through an Isa will see you paying just 10 per cent tax on income and getting
capital growth tax free. You will also have the ability to sell up quickly if
you want.
If you
know someone who has entered the buy-to-let market, ask them about their
experiences.
2. Choose a promising area
Promising does not mean most expensive or cheapest. Promising means a
place where people would like to live and this can be for a variety of
reasons.
Where in your town has a special appeal? If you are in a commuter belt,
where has good transport? Where are the good schools for young families? Where
do the students want to live?
Asking yourself these questions might sound over simplistic, but they
are probably the most important aspect of a successful buy-to-let investment
3. Do the maths
Before you think about looking around properties sit down with a pen and
paper and write down the cost of houses you are looking at and the rent you are
likely to get.
Buy-to-let lenders typically want rent to cover 125% of the mortgage
repayments and many now demanding 25% deposits, or even larger, for rates
considerably above residential mortgage deals. The best rate buy-to-let
mortgages also come with large arrangement fees.
Once you have the mortgage rate and likely rent sorted be clinical in
deciding will your investment work out?
What will happen if the property sits empty for a month or two? These
are all things to consider. Make sure you know how much the mortgage repayments
will be and if it is a tracker allow for rates to rise.
4. Shop around and get the best
mortgage
Do not just walk into your bank and building society and ask for a
mortgage. It sounds obvious, but people who do this when they need a financial
product are one of the reasons why banks make billions in profit.
Read This is Money's buy-to-let section for details of latest
buy-to-let mortgage deals highlighted and check lenders' websites, Skipton BS,
BM Solutions, NatWest, Woolwich, Coventry BS, Platform (part of Co-op Bank) and
Accord (part of Yorkshire BS) have been consistent in recent years.
If you are looking for advice consider using a specialist buy-to-let
mortgage broker. Remember asking them for information means you are under no
obligation to use them.
5. Think about your target tenant
Instead of imagining whether you would like to live in your investment
property, put yourself in the shoes of your target tenant.
Who are they and what do they want? If they are students, it needs to be
easy to clean and comfortable but not luxurious.
If they are young professionals it should be modern and stylish but not
overbearing.
If it is a family they will have plenty of their own belongings and need
a blank canvas.
Remember that allowing tenants to make their mark on a property, such as
painting, or adding pictures or taking out unwanted furniture makes it feel
more like home - these tenants will stay for longer, which is great news for a
landlord.
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