Investing in property can be a good way to grow your wealth in the long term but also make short-term income. If you’re ready to become a buy-to-let landlord, there are a few things you should know before you start.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Our clients give a number of reasons for deciding to start investing in property. These range from stumbling into the opportunity after inheriting a property and falling in love with a property but already have a place to live to just deciding that it’s time to add property investment to their portfolio.
Things to think about when becoming a landlord
Property investment comes with a fair number of obligations and responsibilities, including tenancy agreements, tenancy deposits, repairs, and maintenance — just to name a few.
Why would one voluntarily take on these extra duties? Well, because buy-to-let is an investment. And including property as part of your investment portfolio is a smart decision.
Decide on what your primary objective as a property investor is.
Are you looking forward to the increase in property value and potential profit you can net down the line? That’s called capital growth – the money you make by selling the property at a higher price than you paid for it and you’ll need to pay capital gains tax on this money.
Or are you counting on your property to bring in a steady income now? This is called rental yield — the money you make from the rent you charge to tenants. You’ll need to pay income tax on this money too.
Looking for the right property
Looking for an investment property is much the same as searching for a home for yourself. Your best chance is to speak to professionals – mortgage brokers, estate agents, etc and to start your search online.
Of course, what you’re looking for in a rental property will depend on the features that will appeal to your target tenant demographics, as different demographics have different requirements.
Students will need different things as opposed to young professionals, as will families. If you’re planning on investing in multi-unit properties, you should be aware of rules and regulations and requirements for various property types.
Choosing a buy-to-let mortgage
Most people will require a mortgage to start their property investment journey. In many ways, buy-to-let mortgages are a lot like regular mortgages and they do have a similar application process. The basic requirements remain the same as well: you’ll need a good credit rating and a sufficient deposit. Having an Agreement in Principle when you begin your property search is recommended to expedite the purchase.
There are a few key differences between a residential and a buy-to-let mortgage, and they have to do with the way your affordability is calculated.
- Eligibility requirements can be stricter,
- The fees and interest rates are often higher, and
- Buy-to-let mortgages often require a bigger deposit (usually between 25% and 40% of the property value).
Interest-only repayment plans are popular, so you might only need to pay the interest each month, not the capital. But it does mean the capital will need to be paid off at the end of the mortgage term. If you’re not prepared to sell the property to do this, you’ll need to come up with other funds to pay it off.
Give us a call
If you’re looking to add property investment to your investment portfolio, there are lots of things to consider. Whether you’re looking to purchase your first property to let or expanding your current portfolio, we’re here to help. Contact us to discuss your next steps.
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