For many buy to let properties can be an appealing investment, with the promise of high returns through consistent rental income. But, with letting fees, mortgage interest payments, repairs and other costs that come with being a landlord, what should landlords consider before jumping ahead with an investment property?
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What Should I Look For in an Investment Property?
Prime Location
The importance of where your rental property is situated cannot be understated, both in the returns a landlord can make from their investment property, and the speed at which they will be able to find a tenant.
But whilst many may see the importance of location as picturesque surroundings it is also essential to consider the peripheries that make life practical. Renters will naturally hope to find a new home close to schools, healthcare facilities, and supermarkets, making their day to day simple.
Close to Public Transport and Commuter Routes
Having a home close to major commuter routes and transport links is universally appealing, making a strong case for your rental opportunity regardless of the type of renters you are hoping to attract. For those hoping to let to young professionals or full-time students this will be a key consideration, potentially making or breaking the decision to proceeding into a tenancy.
Energy Efficient
Not only are more energy-efficient homes becoming increasingly popular with the new generation of renters, but with impending increases to the minimum energy efficiency standards choosing a rental property with a high EPC rating will save owners thousands in repairs and renovations over the coming years.
Average Rent in the Area
Understanding what similar rental opportunities within the area require their occupants to pay each rent in a month will not only offer new landlords a key insight as to how much they should charge for their own property, but the returns they can expect to see from their investment property.
Stick To Your Budget
When searching for an investment property aspiring and established landlords should take the care to establish a budget and stick to it. Whilst it may be tempting to go over budget owners need to remember the costs of marketing their property, having safety inspection carried out, management fees, potential repairs and legal costs, all immediately following the purchase of the property.
How Do I Buy My First Rental Property?
Typically, when looking to either purchase their first buy to let property or expand their existing rental portfolio landlords will turn to the buy to let mortgage. As the name suggests a buy to let mortgage is a specialist loan specifically intended for landlords that wish to purchase a property so they can let it out to tenants. Because of this, however, mortgage providers will commonly view a buy to let package as a higher risk than a common residential equivalent, meaning that the deposits needed to obtain a buy to let mortgage are far higher than their residential counterparts.
How Much Deposit Do You Need for a Buy to Let?
As mentioned, those looking to obtain a buy to let mortgage for their rental property will be required to offer their mortgage provider a far higher deposit than a standard residential mortgage. Whereas with a residential mortgage borrowers will expect the size of the loan to correspond with the size of the deposit they place, this is not the case with a buy to let mortgage; instead, lenders will consider the level of rental income the property is expected to generate each year. Regardless of this buy to let mortgage providers will typically depend anywhere between 20% and 30% of the property’s market value. Another key distinction between that is crucial for landlords to understand is that over the term of the loa each monthly payment made to the provider will exclusively pay off the interest of the buy to let mortgage, with the capital being settled in one payment once the mortgage’s term has come to an end.
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