Feb/100
Buy-to-Let Top Ten Tips
Buy-to-Let is no longer the hot industry it once was and many investors who bought such properties in recent years have struggled as the mortgage rates soared. However, existing Buy-to-Let investors should now be benefiting from lower rates, if they have fallen on to their lender’s standard variable rate.
However, new mortgage deals remain expensive and experts in the industry acknowledge the fact that now is a tough time for buy-to-let.
With property prices now falling, those investors who have continued with the tried and tested method of investing for rental returns rather than capital growth are tempted.
If investors are prepared to watch the value of their property decrease 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 decent long-term investment.
As with any other investment, buy-to-let comes with no guarantees, but, for those people who have more faith in bricks and mortar than stocks and shares here are ten top tips to help you conquer the Buy-to-Let industry:-
1. Don’t set yourself large goals
We have all heard on the news about buy-to-let millionaires who have their huge portfolios of property, however, the days of double-digit house price rises are over. Experts are now recommending that investors invest for income and not short-term capital growth.
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.
After the mortgage, costs and tax are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments, or to pay off the mortgage at the end of its term. This means that you will have benefited from the income from the rent, paid off the mortgage and you will hold the property’s full capital value.
2. Choose an area that may be likely to develop
Deciding on the location of your investment should not be if it is the most expensive or the cheapest property. The location should be a place where people would like to live and this should be for various reasons. Where in the town has appeal? If the property is in a commuter area, where has good transport? Where are the good schools for young families? Where do the students want to live?
3. Spend time doing the calculations
Before you think about looking around properties you should write down the price of houses you are looking at and the rent that you would be 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. They also looked for a 15% deposit, which protects against potential falling prices. But in the wake of the problems in the mortgage market many lenders 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.
You need to also figure out the following:-
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. Do the research (look around)
Just walking into your bank or building society and asking for a mortgage is not the best idea. It may sound obvious, but people who do this when they need a financial product are one of the reasons why banks make millions of pounds in profit. If you are seeking advice, consider using a specialist buy-to-let mortgage broker.
Remember that asking them for information does not mean that you are under any obligation to use them.
5. Consider how involved you want to be
Buying the property is only the first step, you need to think about how involved you wish to be after completion. Will you rent it out yourself or get an agent to do so on your behalf? Agents will charge you a management fee, but they will deal with any problems that may occur and they will have a good network of plumbers, electricians and other workers if things were to go wrong. You can make more money by renting the property out yourself but be prepared to give up weekends and evenings on viewings, advertising and repairs. If you choose an agent you do not have to go for a High Street agent, many independent agents offer an excellent and personal service.
You should select a shortlist of agents, big and small, and ask them what they can offer you.
6. Do your research on the current 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?
Make sure buy-to-let is the investment that you definitely want. Your money may be able to perform better elsewhere. In recent years a high-rate savings account would beat most investments. Now the rates are lower, but, investing in buy-to-let means tying up capital in a property that may decrease in value.
If you know someone who has entered the buy-to-let market, ask them about their experiences.
7. Consider properties away from your home town
Most buy-to-let investors look for properties near where they live, but, your own town may not be the best investment for you. The advantage of a property being close by is you are able to keep an eye on it, but, if you will be employing an agent anyway they should do that for you.
Look further afield and look at towns with good commuting links, that are popular with families or have a sizeable university.
8. Test your negotiation skills
Buy-to-let investors have the same advantage as a first-time buyer when it comes to negotiating discounts. If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a sizeable asset when negotiating a discount.
9. Discover the potential pitfalls
Before making any investment you should always investigate the negative aspects as well as the positive. House prices are falling and if this continues, will you be able to continue your investment? Even in popular areas properties can sometimes sit empty for some period of time. One rule of thumb many buy-to-let investors apply is to factor in the property sitting empty for two months of the year – this gives a substantial buffer. Sometime homes will need repairing and things can go wrong. If you do not have the funds in the bank to cover a major repair to your property, such as a new boiler, do not invest yet.
10. Which tenant group are you targeting?
Instead of imagining whether you would like to live in your investment property, put yourself in the shoes of your target tenant group. 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. If it is a family they will have plenty of their own belongings and need a blank canvas. It is possible to take out an insurance policy in the event that your tenant fails to pay their rent.
Jan/100
The darker side of right-to-buy
Right to buy was introduced almost 30 years ago, hailed as a social revolution that would transform council estates. The reality shows a less rosier picture of fractured communities, exploitative landlordism and a severe lack of affordable housing. Most of the housing exists as the remains of the “homes for heroes” scheme initiated during the twenties by Prime Minister Lloyd George. Yet it is another historical piece of government policy that has influenced the shape of Britain’s streets. In December 1979 the Conservative government published the housing bill that allowed council tenants’ right to buy their homes. The idea was that those who bought their homes would take pride in their property, looking after them more because they had a personal investment in it. Ken Collins like many others bought his house, through right to buy and has expanded his home into a valuable asset. Ken not only benefited financially, he believes that residents who bought their homes became more responsible for them which in turn improved the quality of the entire neighbourhood.
In the long-term the financial benefit to right-to-buy owners is apparent, however the long lasting social effects are clear to be seen in what were previously council estates like Dagenham. Critics of the right to buy scheme argue that right to buy has pushed ‘social housing’ out of affordable areas and replaced it with private sector leasing. Landlords rent these properties out on short term leases to large families, often vulnerable in desperate situation which has an overall negative effect on social cohesion. Furthermore there is evidence to suggest a more under hand practice lurking in London’s council estates. Those reluctant to give up their council tenancies unofficially sub-let properties for cash-in-hand, selling their front door keys, further eroding communities making them increasingly unstable.
It is unsurprising that council tenants choose a less savoury route when we consider the problems taking the official route. This is particularly noticeable in situations were the tenant becomes a leaseholder on buying their ex-council flat. Some councils charge the leaseholders for building improvements, this can lead to demands for vast sums and leave people with no option to sell up rather than remain in their homes. The problem is that the right to buy scheme ignores the fact that many of the council tenants are low income families and rather than handing them an opportunity to secure a home for their future it places them in impossible financial situations leading to debt or worse with no home. Ironically, it is the council that offers an opportunity for those leaseholders struggling to pay back their mortgage a way out, they offer to buy the property back for council housing, some skeptics go so far as to say that the service charges are a way of emptying housing that is desperately needed in popular areas.
The biggest fear is that the reluctance from government to decrease right to buy is taking away the right to rent from people who can not afford to buy. A balance needs to be maintained between those who wish to rent and those who want to become homeowners and the only way forward is to build more affordable housing.
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