This is Money: Tops tips for buy to let landlords

Landlord Expert
By Landlord Expert May 16, 2011 20:23

Poor old buy-to-let. Once upon a time it was David Beckham, Wayne Rooney and Kate Moss all rolled into one – making headlines on a daily basis with every move endlessly analysed.

Buy-to-let is no longer the hot property it once was, and many investors who bought in recent years struggled as mortgage rates rose.

Existing investors should now be benefitting from lower rates, after the base rate was slashed, if they have fallen on to their lender's standard variable rate.

This is especially true for many as a lot of buy-to-let deals do not have typical SVRs but a revert rate that tracks the bank rate.

However, new mortgage deals remain expensive and industry experts acknowledge that now is a tough time for buy-to-let.

But with property prices having fallen to more affordable levels, those who stick to the tried and tested method of investing for rental returns rather than capital growth are tempted.

If investors are willing to accept that the value of their property may slide in the short term, and ensure their property meets the criteria of at least 75% to 85% loan-to-value and returning 125% of monthly mortgage payments then it can continue to be a good long-term investment.

Like any investment, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares here are This is Money's top ten tips:

1. Research the market

If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits. Read This is Money's buy-to-let guides which give a comprehensive run down on the subject and catch up with the latest news in our buy-to-let channel.

Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. In recent years a high-rate savings account would beat most investments. Now rates are lower, but investing in buy-to-let means tying up capital in a property that may fall in value. This compares to the possibility of a 5% annual return on a fixed rate savings account.

If you know someone who has entered the buy-to-let market, ask them about their experiences.

- Message boards: Talk to other buy-to-let investors

 

2. Choose a promising area

Promising does not mean most expensive or cheapest. Promising means a place where people would like to live and this can be for a variety of reasons. Where in your town has a special appeal? If you are in a commuter belt, where has good transport? Where are the good schools for young families? Where do the students want to live?

3. Do the maths

Before you think about looking around properties sit down with a pen and paper and write down the cost of houses you are looking at and the rent you are likely to get. Traditionally buy-to-let lenders want rent to cover 125% of the mortgage repayments, although many had relaxed this in recent years. Most also looked for a 15% deposit, which protects against falling prices. But in the wake of the problems in the mortgage market many are now demanding 25% deposits, or even larger, for rates considerably above residential mortgage deals. The best rate buy-to-let mortgages also come with large arrangement fees.

Will your investment work out? What will happen if the property sits empty for a month or two? Make sure you know how much the mortgage repayments will be.

4. Shop around

Do not just walk into your bank and building society and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make millions in profit. If you are looking for advice consider using a specialist buy-to-let mortgage broker. Remember asking them for information means you are under no obligation to use them.

Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and need a blank canvas. It is also possible to take out an insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance. This can cost as little as £50, and is available as a standalone product from a specialist provider, or as part of a wider landlord insurance poliicy

Landlord Expert
By Landlord Expert May 16, 2011 20:23

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