Rental rewards

Buy-to-let can still be a good bet — just follow these golden rules, advises

AFTER a raft of tax and regulation changes affecting the rental sector , you might be for - given 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.

In the spring, a 3 per cent stamp duty surcharge will be slapped on buy-to-let purchases and before that, landlords will be expected to conduct Right To Rent immigra - tion checks on new tenants.

That’s the bad news. The good news is that, despite 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, rising to £1,544 in Greater London.

and demand has never been greater, thanks to people living longer and inward migration.

‘The Uk population is rising faster than in any other EU country. The one million home shortfall is likely to result in higher rents. This will provide opportunities for landlords,’ says London estate agent Jeremy Leaf.

But, given the new regulations, first-time investors must plan scrupulously. W e’ve drawn up seven golden rules to make sure you get the best from buy-to-let.

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.

ask letting agents for advice, scour local websites for news on companies moving in or expand - ing, and walk the streets to see whether there is already a high supply of properties. If you choose, say, to buy and let a terrace house to students, a new purpose -built block near the university would make it harder to find tenants.

2 BUY the Right Size P roperty: The vast majority of tenants want one or two bedrooms only . Big houses turned into bedsits — known as houses in multiple occupation — 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,’ says Lee Layton, of Carter Jonas letting agency. Graham Davidson, of buy-to -let specialists Sequre Property Investment, urges amateur landlords to shun old wrecks needing refurbishment.

‘Unless you have the time and expertise to manage it yourself, your profits will be squeezed,’ he warns.

3 LOCATION, Location, Location: a survey of 5,000 tenants by agency, knight Frank, revealed that 52 per cent of renters chose their property because it was near where they worked — meaning that land - lords should buy close to employ - ment 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, but not near nightclubs,’ says Marc von Grundherr, of Benham & Reeves Residential Lettings.

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 to 135 per cent 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 remortgaging to boost a buy-to-let deposit.

‘ Speak to an independent mortgage broker who will tell you which deals you can access,’ says Mark Harris, of SPF Private Clients.

5 Don’T Make a Hasty Decision: If you complete a buy-to - let purchase after april 1, it will incur an extra 3 per cent stamp duty. But many experts say high demand over the winter means prices will become artificially high.

‘Waiting will pay dividends. The market is likely to decline when the new rules come in with prices falling more than 3 per cent,’ says Gideon Sumption, of Stacks Property Search.

6 EQUIP Your Rental P roperty: Rental properties can be furnished or unfurnished, but ask letting agents for advice on what works in your area. knight Frank’s survey of tenants shows 57 per cent of 18 to 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.

Letting agents charge between 8 to 15per cent of the rental income, depending on whether you want complete services from finding and vetting tenants to managing the property and collecting rent. These fees are tax deductible.