Buy to let

BUYING NEW HOMES TO LET

Buying-to-let is the purchasing of a property as an investment to rent out. This can prove extremely lucrative but it is not without certain pitfalls, which should be taken into serious consideration. It should be viewed as a long-term investment, because just like the property sales market, the lettings market is equally as changeable due to the changing market conditions. Also, being a landlord does come with a lot of responsibilities but if you feel assured you can handle any of the problems that could occur and have more faith in bricks and mortar than in the stock market then this is the way for you to go. Buying a new build property makes real sense as there will be no costly renovations or things like old boilers to deal with. It will be ready to move into with no maintenance and an NHBC 10-year guarantee for added peace of mind.

There are several points that should be considered before buying a new home to let.

Do the figures on your buy to let new home stack up?

Before you start looking at any new home developments it is important to see if it is likely to be a viable and profitable proposition. Firstly, look at the cost of the new homes you are considering buying and also at the amount of rent you are likely to get for them. Many lenders are looking for a fairly large deposit of possibly 15% - 25% for buy-to-let mortgages and they sometimes come with a fairly hefty arrangement fee, although some attractive deals can be found. Look at the figures and make sure they add up to ensure you are making a profit on your new build investment.

Factor in the possibility that the property may not be rented out for a couple of months. You need to be getting a rental return, which is substantially bigger than the mortgage repayments. Ideally you want the rent money to build up so it can either be invested in another property in the future or provide you with a small income. However, for many, buying a new home to let will be all about the capital appreciation of the property you buy and so as long as your mortgage payments are covered you can benefit from the growth potential in years to come. Be aware, however, that rates do change and so your sums should take into consideration what effect an increase in mortgage repayments would have on your finances. It is a good idea to have an emergency fund available for any problems that might unexpectedly crop up. Shop around for a mortgage to get the best possible rates or you may consider using a specialist buy-to-let broker. Depending on the type of mortgage you get (a tracker mortgage for example) you may find that the repayments increase without a corresponding rise in rental income. Buy-to-let mortgages are based on the monthly rental income that's estimated to be achievable, The rental profits are taxable and if you sell the property you may be liable to capital gains tax, however, you may be able to offset some of the costs as a landlord against tax. There are plenty of information sources online to help you do your homework and you should remember that buying a new home to let is a business and so the advice of an accountant or solicitor should also be sought.

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Buying a new home to let near to where you live makes life easy as you can always keep an eye on it and if there are any sudden problems you will be on hand to sort them out. However, the place where you live may not be the best investment and you could use a managing agent who will attend to the property on your behalf. It is important to consider both the advantages and disadvantages before making such a big decision. Look at fluctuating house prices and the state of the market before you go ahead.

In order to ensure that your buy to let property is always occupied it is advisable to buy a place where people would like to live. Good transport links and nearby local schools are very important and virtually all new developments will have this aspect covered but it is always advisable to check the location of the new homes you are looking at and to ensure that the type and style of property suits the likely tenants you hope to attract. Discuss the matter with a reputable letting agent and take their advice on what homes are most in demand as this varies considerably from area to area. If you are considering renting to students then your property should be near a college of university. Check to see what the average rent is, in other similar properties in the area and don't choose an area that has an oversupply of rental properties as you may find it difficult to find tenants. Apartments are easier to maintain and usually have a communal charge levied for the upkeep of common areas etc but in some areas there is increasing demand for family homes for rent and so doing your homework is essential, before putting pen to paper on your new home investment property.

Who will the tenant be for your new home investment?

Instead of thinking if you would like to live in the property yourself it is advisable to imagine who your tenants are likely to be. Ask yourself some simple questions like, 'who are they and what do they want from a home?' If you are targeting young professionals they will probably want something modern, stylish and contemporary. If it is young families, they will need plenty of space or if it is students, they will need something that is easy to look after and perhaps not so luxurious. Every landlords nightmare is the dreaded four letter word 'void' period. This is the space in-between tenants when you are gaining no income. Choosing a new home which is likely to attract long-term tenants is the key and being sensible over the rent you charge is also good advice. It is far better to have a long term tenant paying a reasonable rent than to be greedy and experience the ups and downs of void periods not to mention the inconvenience of having to redecorate or 'refresh' the property prior to each tenant moving in.

Are you going to be a hands-on landlord?

You will have to decide whether you are going to rent the property out yourself or get an agent to do so. You can opt for just a let-only agent or for a full managing agent who will sort out any problems that might arise but both will charge a fee. If you rent it out yourself you will make more money but you must be prepared to give up time to it - advertising, viewings, repairs, will all need to be done as well as ensuring all the legals are covered. As a landlord it is important to keep abreast of new regulations so that you don't potentially get into any difficulties with new mandatory requirements and so the best advice for busy or 'part-time' landlords is to use a letting agent. You can opt for a tenant-find service which means you pay a fee for them securing a tenant but manage the process of dealing with the tenant thereafter or alternatively opt for a fully managed service which means the agent does all the work on your behalf including collecting the rent, dealing with queries and carrying out any repairs. Do be aware though that there is a charge for these eventualities and a good letting agent should always make you aware of any costs prior to undertaking any work on your behalf.

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