Buy To Let - Basic Tips

Clearly define your B2L Goals:

Why are you investing in property? For your pension, to make a quick profit (highly unlikely in the current market) or to become a full time landlord.

Decide on the amount of effort you can put into your buy-to-let property – Generally, the more time and effort you put into your investment the better return you will get. However, be honest, will you really have time to renovate a wreck if you buy one?

Choose some potential investment locations – What can you afford? Do you want to live close to your property and manage it or will you use a letting agent?

Pick your ideal tenant– Within the areas you have chosen, look at the type of tenants available and compile a list of features your property needs to have to attract these sorts of tenants.

Choose your property carefully:

Ideally B2L investors should be looking for a property, which is ‘under market value’. This is a property, which is either being sold too cheaply or with a few minor repairs such, as a coat of paint, will be worth substantially more than the price paid for it. Some landlords are able to find properties which are being sold for up to 20% below their real value.

Research - Independently research the area you are interested in, using sources such as the online versions of local newspapers and community websites. This will give you an idea of where in your chosen area you will be able to find the ideal property.

Review all sources of potential properties – Due to the high cost of estate agents, some consumers prefer to try and sell their houses themselves. Look at local newspapers/websites and buy specialist publications such as Loot.

Meet all the estate agents in the area even the ‘grotty’ ones, some investors only speak to those they like the look of and miss out on potential bargains. As a general rule – buy through ‘naff’ looking estate agents and sell through ‘posh’ ones.

Visit as many properties as possible – The perfect property is hard to find – some experience landlords visit up to 25 properties before finding the right property so don’t take short cuts.

Investors should avoid purchasing ‘off-plan’ properties, as they are generally more expensive than ‘second hand’ ones. Landlords will also be vulnerable to ‘investor flooding’ which is when multiple properties in the same development come onto the market at the same time making it much harder for people to find tenants.

Avoid paying over the odds for a property by using www.landregistry.gov.uk, which lists any property that has sold in the last few years and when.

Make sure your surveyor does a thorough inspection of the property. As a Landlord, you will be liable for all maintenance so make sure to know about all potential problems.

When you finally find a property - Bargain. Some sellers, especially those who have owned the property for a long time, and have large amounts of equity in their property, are happy to drop the price if it means a quick sale. When looking at a property you should ask more questions about the seller’s position then you do about the actual property itself!

Sort out your finances:

Ensure you know the real value of the rental income you can secure from your chosen property. Letting agents often ‘talk-up’ rental yields, so contact them as a potential tenant looking for a property similar to yours to get the truth.

Don’t consider buying a property until the figures stack i.e. will you be able to generate sufficient rental income to ensure you can pay your mortgage and ‘service’ the property.

Make sure you have a plan in place which protects you against sharp interest rate rises and rental voids for example, sufficient rental income after paying off the mortgage each month to have an emergency fund.

To get the highest yield from your investment, shop around for the most competitive mortgage deal.

Look at the tax advantages offered by the various types of mortgages - Mortgage Interest payments can be offset as an expense against rental income for tax purposes so you should consider this.

Consider interest-only and repayment options– Many investors choose interest-only mortgages believing that capital gains will provide them with a profit at the end of the period. Consumers need to decide if they want to take this chance or stick to a repayment mortgage.

Speak to a specialist broker – These companies live and breathe buy-to-let mortgages and are better placed to find you a good deal than companies, which offer more general advice.

Read the fine print – Make sure you understand any redemption penalties or deed release fees, which apply to your potential mortgage.

Choose your tenants carefully:

You have chosen your property to appeal to certain types of tenants, advertise in publications or on notice boards they are likely to see.

If you are going to use a letting agent, find out about their reputation and make sure you can trust them.

Show the tenants round yourself and chat to them. A letting agent is most interested in getting a ‘sale’ but you are likely to be pickier.

Obtain references and if possible, speak directly to their former landlords – it’s easier to ask questions about prompt payment and any problems they may have had.

Draw up a comprehensive tenancy agreement, which protects both parties and ensure the inventory is signed – this will avoid any problems later.

If your tenant develops payment difficulties, deal with the situation calmly but swiftly. The longer they don’t pay rent, the harder it will be for you to get your money.

Regularly Review your finances:

Review your redemption penalties – It may be cheaper to pay the redemption penalties in order to get out of an uncompetitive deal.

Look out for special deals – To encourage remortgaging, some lenders are offering fee free deals or cash-back incentives, look out for these deals.

Consider moving your portfolio to one lender – Some lenders use portfolio-lending arrangements, which average the rental calculation across all the properties. This means that the higher yielding properties can subsidise the borrowing on the lower yielding ones.

And then start again...

Decide if you would like to buy further properties or are happy owning only one or two.

Look at restructuring your financing arrangements to provide you with a deposit for your next property.

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