10 TOP TIPS FOR BUY TO LET

ALL this week in a series of brilliant pullouts, we are uncovering the secrets of becoming a buy-to-let landlord. Today, we examine the essential dos and don’ts of buying and renting out a home, how you could build a buy-to-let empire and how to keep good tenants — and avoid the bad ones. 1 RESEARCH THE MARKET

Do you know the risks as well as the benefits? Is a buy-to-let really what you want? Would your money do better elsewhere?

Investing in buy-to-let involveslves committing tens of thousands ds of pounds to a property and, typically, taking out a mortgage. age.

When house prices rise, you can make big gains above your mortgage debt — but when they fall your deposit is eaten into and the mortgage stays the same. Propertyerty investing has paid off handsomelymely for many people in terms of both income and gains, but you must st go into it with your eyes wide open, pen, acknowledging the potentialntial advantages and disadvantages. s.

If you know someone who has invested in buy-to-let or let et a property before, ask them about bout their experiences, warts andd all. The more knowledge you have and the more research you do, the better the chance of your investment paying off.

2CHOOSE THE RIGHT AREA

IT’s all about location, location, tion, location — and generally, the more promising, the better, whichhich means a place where people ople would like to live. This can be e for a variety of reasons.

Where in a particular town or city has a special appeal? If you are in a commuter belt, are there good transport links? Where are the good schools for young families? Where do students want to live?

you need to match the kind of property you can afford to buy with locations that people would want to live in.

Most people buying to let invest in property near where they live, as they probably know that market better than any other and can spot the kind of property and location that will do well.

They also have a better chance of keeping tabs on the property.

Bear in mind, though, that if you are a homeowner you already have one investment in the local property market, so choosing a different area or property type might leave you less exposed to future market changes.

3ENSURE YOUR FIGURES ADD UP

Before you look around properties, write down the cost of houses you are aiming at and the rent you are likely to get. Buy-tolet lenders typically want rent to cover 125 pc of the mortgage interest repayments on a loan and many demand 25 pc — or even larger — deposits. The best rates for buy-to-let also come with large arrangement fees and even the better deals will be more expensive than residential mortgages.

Don’t forget maintenance costs. What will happen if the property sits empty — known as a ‘void period’ — for a month or two?

Make sure you know how much the mortgage repayments will be, and if you decide on a tracker mortgage, budget for rates to rise.

4SHOP AROUND FOR LOANS

Don’T j ust walk i nto your bank or building society and ask f or a mortgage. Many High street l enders don’t handle buy-to-let borrowing.

speak to a good independent broker. They can talk you through the deals available and help you weigh up which one is right for you, and whether to fix or track.

5 TARGET YOUR IDEAL TENANT

InsTeaD of asking yourself whether you’d like to live in your buy-to-let property, put yourself in the shoes of your target tenant.

Who are they and what do they want? If they are students, the property needs to be easy to clean and comfortable, but not luxurious. If they are young professionals, it should be modern and stylish, not overbearing. If they are a family, they will have their own belongings and will need a blank canvas.

allowing tenants to make their mark on a property makes it feel more like home for them and they will want to stay longer.

6DON’T BE TOO AMBITIOUS

exPerTs say invest for income, not short-term capital growth from rising house prices. To compare different properties’ values, use their yield, ie, annual rent received as a percentage of the purchase price. for example, a property delivering £10,000 of rent that costs £200,000 has a 5 pc yield. rent should be the key return for buy-to-let.

Most buy-to-let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time.

This is tax-efficient, as you can of f s et mortgage payments against your tax bill. If you can get a rental return substantially over the mortgage payments, then once you have built up an emergency fund, you can save or invest any extra cash.

remember that running costs, maintenance bills and agents’ fees will eat into your return. you may want to consider whether buy-to-let still beats an investment fund or trust once these costs are taken into account.

once the mortgage, other costs and tax are considered, you will want the rent to build up over time so you can use it as a deposit for further investments, or to pay off the mortgage at the end of its term. This means you will have benefited from the income from rent, paid off the loan and hold the property’s full capital value.

7LOOK FOR POTENTIAL

MosT buy-to-let investors look for properties near where they live. But your town may not be the best investment.

Cast your net wider and look at towns with good commuting links that are popular with families or have a university. It is also worth looking at properties that need improvement — they can be negotiated on for a better sale price, then spruced up.

8HAGGLE HAGGLE OVER PRICE

as a buy-to-let investor you have the same advantage as a firsttime buyer when it comes to negotiating a discount.

If you are not reliant on selling a property to buy another, you are not in a chain and represent less risk of a sale falling through. This can be a big help when negotiating a discount. Make low offers and don’t be talked into overpaying. Know your market — and remember it’s useful to find out why someone is selling and how long they have owned the property.

9 KNOW THE PITFALLS

Before you make any investment, investigate the downsides. House prices are rising but growth has slowed and they could fall. If property prices dip, will you be able to continue holding your investment?

Mortgage rates are low at the moment and that is encouraging people to invest, as rental income comfortably covers the mortgage. But what if they rise again?

Homes often need repairing and things can go wrong. If you don’t have enough in the bank to cover a major repair, such as a new boiler, then don’t invest yet.

10VISIT EVERY SIX MONTHS

IT really pays to look after your tenants, then they will look after you. The biggest drag on many a buy- to- let landlord’s investment returns is when they don’t have anyone in the property. Good tenants who want to stay help avoid this — and if they move on, they may recommend your property to someone else.

Keep up with maintenance, make sure your property is a nice place to live and try to build up a good, personal relationship.

landlords should visit the property every six months for an inspection, giving tenants a week or two’s notice. Most assured shorthold tenancies are for six months, then reviewed. This can help to build the relationship, and it enables you to keep an eye on any possible tenancy problems.