The buy-to-let arena has turned complex for investors due to recent government changes. Even seasoned landlords face uncertainty. Tenant demand is soaring, and banks are eager to lend once more. Combine this with rising rents and a sluggish housing market, and it’s an ideal time to reconsider a Buy-to-Let investment. Investing is the key here, putting your capital to work for maximum returns. Whether you seek monthly rental income or a long-term investment, avoid common mistakes that can jeopardize your Buy-to-Let venture.
Investing in buy-to-let properties can still offer substantial profits, delivering strong returns and capital growth potential in many regions across the UK. However, it’s important to note that this venture isn’t without its challenges, especially if you choose to manage your property portfolio independently.
As a landlord, it’s crucial to possess the correct knowledge, a well-thought-out strategy, and a long-term plan before taking any action. In partnership with Arbuthnot Latham, a private and commercial bank, we delve into the key aspects that landlords must get right to sidestep stress, save valuable time, and protect their financial interests in the months and years ahead.
What is buy to let mortgage?
A buy to let mortgage is specifically designed for properties intended for renting. If you intend to lease your property, a buy to let mortgage is essential. While it shares similarities with a standard mortgage, where you borrow a substantial sum for a defined period, there are significant distinctions to consider. Given that you won’t reside in the property, it entails specific nuances.
Buy-to-Let Investment Landlord Mistakes:
While opportunities exist, it’s crucial for landlords to avoid these common buy-to-let investment mistakes:
Avoid Overspending for Minimal Returns
“Assess Affordability: A Wise Approach to Buy-to-Let Investment”
Before leaping into buy-to-let, calculate your financial limits, factoring in all landlord costs. Avoid financial strain, stay realistic, and seek professional mortgage advice, considering future interest rate increases. Unexpected expenses, such as boiler repairs or service charges, can emerge; prepare for them without compromising your investment’s profitability.
Additionally, rental income fluctuations, tenant arrears, or vacant periods might occur. Develop strategies to withstand lean times and ensure your investment remains resilient.
Securing Your Investment’s Future: The Essential ‘Futureproofing’
Many landlords find themselves in a tricky situation because they hastily jump on an enticing property deal without due diligence. Remember the sage advice: haste makes waste. By dedicating some time to local research, you can uncover the reasons behind the property’s attractive price tag. Is the location ideal? Are there any security concerns? Is a new motorway scheduled to cut through the nearby nature reserve? Could there be a supermarket popping up at the end of the street? Conducting a bit of investigation into the area’s dynamics doesn’t require a genius. It’s simply a matter of staying informed about local developments. After all, a property offered at an unusually low price typically has underlying causes. Just ensure that unforeseen external factors won’t negatively impact your investment.
Buy for your tenants, not yourself.
Tap into your logical side, channel your inner Vulcan, and make a property investment that promises a robust return. This is the key: Avoid the common pitfall of purchasing a property solely based on personal preference, which may not align with the needs of your intended tenants. Also, exercise caution when it comes to the interior decor and fittings. Opt for neutral colours and furnishings, keeping your prospective tenants in mind throughout the process.
Factor in unforeseen costs
In addition to mortgage payments, various expenses are linked to a rental property, encompassing insurance, maintenance, and compliance with regulations. These regulations include energy efficiency standards, electrical safety, and gas safety certification.
It’s prudent to maintain a contingency fund to address these costs. Similar to preparing for void periods, you might contemplate bolstering this fund by retaining any excess rent in your bank account.
Calculating Rental Yield
This should be part of your initial research. Finding a property in an area that offers a strong return on investment is crucial. You might consider a property in a desirable yet affordable area that needs some renovation. If you go this route, ensure effective budgeting to maximize your investment.
Learn about property selling and rental prices in those areas and compare them to other properties within a 10-mile radius. Overpaying for a property with slow appreciation is unwise, especially if you’re renting it for less than your mortgage. Thorough research is essential.
Pick the right location
One of the most significant blunders landlords can commit is selecting an inappropriate location, whether it’s an area with low tenant demand or serious issues related to anti-social behaviour.
The mantra of “location, location, location” remains as crucial as ever, perhaps even more so in light of the impact of Covid. When you’re in the process of purchasing a property for renting, it’s paramount to acquaint yourself with the area and its reputation before making an investment. This might sound like an obvious step, but due diligence is sometimes overlooked.
For instance, an area might be very upscale but also command very high rents, potentially making it unsuitable as you could face challenges in finding tenants. Take London, for instance. Despite being the largest and most popular rental market in the country, it doesn’t necessarily yield the highest returns due to the initial purchase costs. Areas on the outskirts of London and the counties surrounding it often offer better rental yields due to more affordable entry prices.
When evaluating an area, consider whether it’s appealing to prospective tenants. Is it close to green spaces, transport links, and local amenities? Does it offer reliable WiFi connectivity, or is it a WiFi dead zone? Is there a nearby university? HMOs (House of Multiple Occupancy) tend to be in high demand in student-heavy areas and places favoured by young professionals, but they might have limited appeal in family-oriented or elderly tenant-centric neighbourhoods.
Do you understand the role of a landlord?
Landlords sometimes put their investments at risk by overlooking the legal aspects that govern their role. Firstly, remember that while it may be your property, it isn’t your personal residence. You can’t simply drop in whenever you like, and it’s your duty to keep the property in a suitable condition for your tenants. It’s essential to familiarise yourself with the law, read relevant literature, and stay informed about current regulations. Joining one of the available landlord associations is a wise step to take.