Are you considering a Buy to Let investment purchase?
A buy to let investment is different from buying a home for you to live in. So, your thought process should be different.
It’s an investment
Make sure you buy with your head and not with your heart. An old quirky cottage may look nice but bear in mind that old properties are likely to face higher maintenance costs. If it costs a lot to heat the property, a tenant may spend one winter there and then decide it’s too expensive and move on.
Location
Investing in property, you want to look for somewhere that will be attractive to prospective tenants.
Is it near major roads?
Is it easily accessible?
Does it have good schools nearby?
Does it have easy access to amenities such as shops, restaurants, etc?
Leasehold vs Freehold
Leasehold properties are often flats. This means that they are usually less expensive to buy than houses or freehold property. However, they normally have associated ground rent costs and/or maintenance charges. These maintenance charges are normally paid on a monthly or quarterly basis and cover the cost of paying for “shared areas” such as stairways, lifts, corridors, etc. Often, the building’s insurance is covered in any service or maintenance costs.
These charges are paid by the owner and not by the tenant, so you need to take them into account when working out the feasibility of the investment.
If the property is leasehold, you should ask how many years are remaining on the current lease. If it’s a low lease remaining the property may on the market for less than you would expect, but a low lease can make it difficult to arrange mortgage finance.
Stamp Duty
If you already own a residential property that you live in, buying a 2nd or subsequent property means you’ll pay more stamp duty. In April 2016 a 3% surcharge in stamp duty was levied on the purchase of all 2nd homes. You can work out how much stamp duty you’ll pay by using this link and selecting the “additional property” option.
https://www.stampdutycalculator.org.uk/
Cost of Letting
Most landlords will instruct an agent to rent out the property and manage the property on their behalf. Usually, the fee will be a percentage of the monthly gross rent (ie the rent the tenant pays). The agent will deduct their monthly fee and pay you the remainder.
Again, this is a cost that needs to be accounted for.
Financing the Property
If you need a mortgage to purchase the property, the amount you can borrow is based generally on the amount of rental income you could expect to receive each month. So, when you look at property make sure you ask the agent how much they consider you could achieve. If the selling agent is not a letting agent do your research and look at similar properties being advertised to let or contact a letting agent specifically. Before making an offer, it’s advisable to check with a mortgage advisor who can help you establish how much you could borrow, based on the projected rental income and the amount of deposit you have available.
Void Periods
If there is no tenant in the property for any reason, you as the owner will be responsible for the utilities and council tax between tenants. You will, of course, also be liable for the mortgage payments which will still need to be made even in months you receive less or even no rent due to a change in tenant.
If you have any questions about buy to let investments or would like any further details, then please get in touch.
The Financial Conduct Authority does not regulate buy to let mortgages.
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