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Buy-to-let continues to provide a good return
Thinking of investing in a Buy-to-Let property? Here’s what you need to know…
The demand for rental property remains at an exceptional level and, with rent and capital values rising, the return from a Buy-To-Let investment remains a good option for many. Andrew Luxton, Head of Lettings at Stags, considers the options in today’s property market.
1. Match the right property with the right location
The key is to find a buy-to-let property in an area where people want to live. This sounds so simple but you need to give this a lot of thought. When it comes to choosing the location, consider its amenities, main lines of communication and employment possibilities. Then you need to find the property that best fits with the people who want to live there, be it a student studio flat, a two-bedroom commuter flat or a four-bedroom family home. It is important you do not let your own personal taste in property cloud your judgement. In my experience, tenant expectations are rising all the time these days and all buy-to-let properties need to be presented to a good standard.
2. Do the maths
Before buying a property, make sure you have taken into account all the costs you are about to incur. Not just for the purchase of the property to include Stamp Duty, but also any refurbishment and finance costs. You need the rent to cover all borrowings and costs and to allow for void periods between tenants. As a landlord, you will be responsible for maintenance costs, servicing of fixtures and fittings plus buildings insurance. It is almost always wise not to purchase a property that requires a lot of ongoing maintenance or refurbishment prior to letting.
Capital appreciation - your property rising in value is to be hoped for but cannot be guaranteed. Don’t be over ambitious: do your sums based on a realistic yield and return. Whilst capital values in the South West have risen between 10% and 15% over the last 2-3 years this is exceptional. As a guide, gross rental yields for buy-to-let properties will usually be in the region of 5% per annum, excluding capital appreciation.
3. Face up to your responsibilities
Once you have purchased your buy-to-let property and started looking for a tenant, you then become a landlord. As such, you need to be aware of the requirements that cannot be avoided (or ignored!). There is extensive legislation that governs the private rented sector and it changes frequently. The rules include safety of gas and electrical equipment, Energy Performance Certificates (EPCs), repairs and maintenance obligations, furniture standards and fire and safety requirements, plus deposit protection. You will need to be aware of all these and more before letting your property. As a result of this, many buy-to-let landlords choose to place the letting and management of their property in the hands of a reputable, licensed and bonded agent.
4. Sort out the finance
Some buy-to-let investors do not need to borrow in order to finance their purchase, although this path of action may not actually give the best return on money invested. When you have capital to invest in property, you need to decide whether to buy one property or perhaps split this capital to buy two or three properties, financing the remainder of the cost with a Buy-To-Let mortgage. Make sure you take advice from an independent financial advisor before you choose the mortgage that best suits your current and future needs.
5. Talk taxes
The income from rented properties is taxable but you will be able to offset some of the costs you incur as a landlord. These include agency fees, insurance premiums, some of the interest element of mortgage payments, repairs and renewals. You should seek tax advice not only about income tax but also capital taxes, especially in the light of recent changes affecting Stamp Duty on second properties and mortgage interest.
6. Choosing an agent
The right letting agent can mean your buy-to-let investment ends up being as trouble-free as possible. The management fee, while important, should not be the only factor in deciding which agent to choose. You need an agent with the structure, staffing, experience and local knowledge to fulfil the obligations as stated within their terms of business. For added assurance and peace of mind, you should choose an agent who is a member of an appropriate professional body such as ARLA (Association of Residential Letting Agents) or RICS (Royal Institution of Chartered Surveyors) to ensure that your both your asset and money are protected.
For more information the Stags buy-to-let guide can be viewed here or, alternatively, contact your local Stags office for more advice and information.
