19th February 2016
Rental rewards: The 7 golden rules of buy-to-let
Buy To Let property can still be a good investment if you do it properly
First-time investors must plan scrupulously, so we've drawn up seven golden rules to make sure you get the best from buy-to-let. After a raft of tax and regulation changes affecting the rental sector, you might be forgiven for thinking buy-to-let is now too tricky to contemplate.
This year the Chancellor has restricted mortgage-interest tax relief for landlords and made it harder to offset wear-and-tear repairs against tax, and in April, a 3% stamp duty surcharge will be slapped on buy-to-let purchases. Landlords are now also expected to conduct Right To Rent immigration checks on new tenants.
However, despite all these changes, rewards for landlords can still be high. The HomeLet rental index shows average rents across most of the UK are £743 a month, and demand has never been greater. The UK population is rising faster than in any other EU country. The one million home shortfall is likely to result in higher rents and this will provide opportunities for landlords.
1. Target Your Tenants
Decide whether students, young professionals or families with children are your preferred tenants. This will help you choose where and what to buy.
2. Buy the Right Size Property
The vast majority of tenants want one or two bedrooms only. Big houses turned into bedsits, known as houses in multiple occupations (HMO’s), look good on paper but are subject to many health and safety rules which can reduce your returns and make management of the property a full-time job. HMOs are only for landlords with experience - unless you have the time and expertise to manage it yourself, your profits will be squeezed.
3. Location, Location, Location
Renters are most likely to choose their property because it’s near where they work — meaning that landlords should buy close to employment centres. The ideal area is within walking distance of major employers such as a hospital, university or big private companies, near a public transport hub, and close enough to shops.
4. Make Sure Your Figures Stack Up
It still makes sense to get a mortgage even if you can afford to buy outright, as you receive at least some tax relief. Lenders want evidence that rental income will be 125-135% of the mortgage repayments, to ensure they will get paid even if there is a void period between tenants. If you have a lot of equity in your main home, you may wish to release some of it through re-mortgaging to boost a buy-to-let deposit.
5. Don't Make A Hasty Decision
If you complete a buy-to-let purchase after April 1 2016, it will incur an extra 3% stamp duty. But experts say current high demand means prices have become artificially high. The market is likely to decline when the new rules come in with prices falling more than 3%, so waiting could pay dividends.
6. Equip Your Rental Property
Rental properties can be furnished or unfurnished, so you should consider your target tenants. Tenant surveys show 57% of 18-24 year olds want a partly or fully-furnished house or flat. But if you're letting a house to families, they may have their own furniture.
7. Use A Letting Agent
It's tempting to do it yourself, but private lettings are complicated with new housing laws and major health and safety regulation changes every year — including checks on tenants' migrant status from February 2016.
As UKALA licensed agents it’s our job to stay abreast of all this legislation and make sure that our landlords and their properties are compliant. So if you are already a landlord or looking to invest in your first buy to let, we can take care of all of this for you. Our dedicated team of letting specialists are highly trained and knowledgeable, ensuring your property secures a tenancy quickly and your property investment is working for you.
We are seeing a rise in interest from prospective tenants and are looking for new landlord instructions, so if you are considering buy to let investment, please call us on 01202 777704 for a free rental market appraisal.