Do your research
The importance of doing your research before you sign on any dotted line cannot be emphasised enough. Research areas and choose an area with potential; is it on a commuter belt, does it have a large student population, does it have good schools and would therefore appeal to young families? If an area has potential, what type of property would best meet the needs of your potential target market? For students, clean and comfortable would be suitable so spending money on high spec finishing’s would not be sensible. Get an idea of the rent ranges for different target markets; for professionals or families check a property letting site like Upad.co.uk or for students check the local university’s letting agent site. By researching your target area and market, you will have a better idea of what type of property is going to rent well.
Do the maths: your financial planning
The process and costs associated with buying a buy-to-let property is similar to buying a private home. You’ll have to budget for buy-to-let mortgage costs, a deposit, legal fees and stamp duty. Additional costs to factor in are maintenance and repair costs and letting agent fees. You should also consider if you’ll be able to afford 2 mortgages if the property is not let out for a period of time.
While capital growth is what you may hope for over the long term, in the short term it is best to focus on ensuring your buy-to-let mortgage repayments and other costs will be covered. Buy-to-let lenders typically want rent to cover 125% of the mortgage repayments and many lenders now require at least 25% deposit. Interest rates are currently extremely low and are likely to go up; ensure your rental income will cover increased repayments. If you want to calculate your buy-to-let yield, there are online calculators that can help estimate your rental property yields.
Be realistic about how hands on you want to be
Do you want a fixer upper, or does the thought of donning painting overalls fill you with horror? Do you have the skills to renovate a house, or will you have to price and coordinate contractors to do the work for you? When assessing properties, be realistic about how much work needs done and if you have the skills or enthusiasm to do this. Another consideration is if you will rent out the property yourself or do so through an agent. Agents will charge a fee, but will send out tradesmen as problems arise. You may save money by renting out the property yourself, but the trade off is spending weekends and evenings arranging viewing or performing repairs. Being honest and realistic from the outset will save you taking on a project that’s too big or will cost you more in the long run.
There are certain responsibilities you must meet as a landlord. Being a landlord is considered as running your own business, so you will have to declare any income made to HMRC through a Self Assessment tax return. You will also need to ensure the property you let adheres to current regulations, for example:
- Gas safety certificates
- Energy performance certificates
- Protecting the tenant’s deposit
- Fire resistant furniture
- Legionnaires disease checks
- Right to rent checks (certain areas only)
- Landlord license (certain areas only)
Up to date information covering the latest legislation can be found at the government website www.gov.uk.
Get to know your tenantContrary to popular belief, the relationship between tenants and landlords aren’t always bad. A recent study found that almost half of tenants rate their relationship with their landlord as good, or very good. Having a good working relationship with your tenant is beneficial as tenants that have good relationships with their landlords are more likely to take care of the property, renew their lease and stay in your property longer. I’m not suggesting that you regularly go round for tea, but keep the lines of communication open and aim to be friendly but consistent and responsible.