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Why Buy-To-Let Investment

Why Buy-To-Let Investment

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"I have walked the same footsteps and, therefore, know first-hand the challenges and pitfalls you may encounter.  As a landlord myself, I have an in-depth understanding of the buy-to-let market, and how to achieve success.

Whether you're seeking return on your investment through rental yield or capital growth, I know what makes a good investment property.

Here is my concise guide of things to consider:

WHY THE HUGE GROWTH IN LETTING DEMAND AND WILL IT CONTINUE?

The UK has a housing crisis.  With a growing population, house prices have become out of reach for many people and this is no exception in Stamford and Rutland. With no option but to rent, these people have the opportunity to 'save before they buy'. 

 

In the past 5-10 years there has been a huge increase in people re-locating for work or family reasons. This is especially prevalent in Stamford and Rutland as people chose to move to the area for lifestyle reasons. With an excellent choice of state and private schools, beautiful countryside, low crime and good transport networks, families are choosing to live in Stamford, Oakham, Uppingham and Rutland villages yet perhaps work in the nearby towns/cities of Peterborough, Corby, Leicester, Nottingham - and with many people commuting daily to London.

There is sufficient evidence both locally and nationally that this shift to the rented sector is set to continue for many years.

Tenancy law changes in 1988 now means pitfalls such as sitting tenants are avoided and the introduction of 'buy to let' mortgages has made it much easier and straight forward for landlords to enter the market.
 

RENTAL YIELD AND CAPITAL GROWTH

These are the two ways you will make money from your property investment. 

Capital Growth is the increase in value of the property over time. In the towns and villages of Oakham, Uppingham and Stamford this has been excellent over the years and will always be a solid investment due to the popularity of the area and the quality of the housing stock. 

Rental Yield is the annual rental return you get for your property. The simple calculation to work out the gross rental yield is:-

Annual rent divided by the purchase price of the property

 

CHOOSING THE RIGHT PROPERTY

I get asked by many potential investors “what makes a good investment property”? This really depends on what your objectives are:

Set your objectives - Are you looking for the highest rental return, the highest capital gain, a project to do up, a low maintenance property or a property to move into eventually yourself? I expect a combination of these factors, but which are the most important to you?

Property search – Once the objectives are set, begin searching using the property portals such as www.rightmove.co.uk and www.zoopla.com. These sites provide additional information such as a useful house price index and you can also get an idea of rental values. Registering with the local estate agents means they will forward you any new properties that come onto the market.

There is demand for all types of property, but within this area, I believe the greatest long term demand will be for 2 and 3 bedroom modern properties within the towns of Oakham, Stamford and Uppingham. Other important (but not critical) factors are – parking, gas central heating, double glazing and bathroom with shower. Don’t choose a property that is necessarily attractive to you i.e. a remote chocolate box thatched cottage might be idyllic to you, but will it have the highest rental demand and lowest maintenance costs?

FREE PROPERTY CONSULTATION– Why not book an appointment with David to discuss in more detail? Click here to request an appointment.

 

MORTGAGES

Buy-to-let mortgages are similar to an ordinary residential mortgage and these days the interest rates and arrangement fees on buy-to-let mortgages are only slightly higher than on ordinary residential mortgages.

When considering whether to give you a buy-to-let mortgage, as well as looking at your own credit history and the property's value, the lender will also do an assessment of the likely rental income from the property. The lender's valuation report will give them this information and they will usually expect the rent to be at least 20% more than the interest payable on the mortgage (this is called "the rent to interest ratio").

Most buy-to-let lenders will only lend up to 80% of the property's value as a mortgage (this is called the "loan to value" ratio) - it means you will have to put in the other 20%. These percentages do vary greatly between lenders - as do the types of property they will lend against - so it pays to shop around a bit for the best deal. If you haven't arranged your mortgage yet, we can put you in touch with a local broker.

The key thing is to be comfortable with what you have borrowed and to be happy that if the property was empty for a month or two with no rent coming in or if interest rates went up, that you would still have enough money to pay the mortgage plus other expenses. And remember - if you are thinking of letting out your former home you must contact your mortgage company as you'll need to convert your residential mortgage to a buy-to-let one. 

VIEWINGS AND MAKING AN OFFER

Use the property portals to gather as much information as possible and then arrange viewings on potential properties. Once you have found the ideal property make an offer considering the following factors:

Make your position clear - If you have your mortgage in place and as you are not in a chain, this will be favourable to the seller.

Your budget – Set your limit based on your sums. Remember not to get emotionally attached, if the buyer won’t accept your offer it might be time to look elsewhere.

Sellers position – are they in a hurry to sell or has the property been on the market a long time? If so they might accept a reduced price?

The market – Is it a sellers or buyers market? This will affect what your seller will accept.

WHAT ARE MY COSTS?

Ensure you budget accordingly; here is a simple list of potential costs:

  • Upfront Costs
  • Purchase Price
  • Stamp Duty (if applicable)
  • Survey
  • Searches
  • Solicitor’s fees

On-going Costs

  • Mortgage payment
  • Building insurance
  • Agent management fees
  • Maintenance
  • Annual gas certificate (if applicable)

TAXATION

As a landlord, you'll have to declare your income and costs - whether you make a profit or not - and keep all records, invoices, receipts and statements for up to six years. 

Request and complete the “Land & Property Supplementary” pages for your tax return and the easy to follow notes from HMRC.

A large number of running costs can be offset against your rental income, including the interest payments on your mortgage, agent’s fees, maintenance etc. 

Where you make a loss on your buy-to-let property, you can carry forward and set it off against rental profits in future tax years (but you cannot set it off against other income).

If you aren't resident in the UK and use a letting agent for management you can get an exemption from HMRC so that the rent can be paid over to you as a gross amount.

When you come to sell, there are a number of reliefs that are available that reduce the amount of tax you may have to pay on any capital gain you've made on the property, including 'Letting Relief' and your Capital Gains Tax Allowance.

If you have any more questions, please call me, I am here to help".

David Crooke, owner

 


This can be a bit more complex, so if you need to know more, we advise you to contact the Inland Revenue or your accountant.