If you’re thinking about buy-to-let, here’s a guide to seven things you should always consider. Keep reading for loads of useful advice, and some handy hints if you’re thinking of investing in a new-build property.
Get your finances in order
If you’re thinking of investing in property, a buy-to-let mortgage will help. You can typically borrow up to 75% of the value of the property, although the exact amount will depend on the anticipated rental income from the property.
It can pay to talk to an independent mortgage broker if you’re looking for specialist buy-to-let finance. They will have access to thousands of products and can give you impartial advice on the right lender and the right deal for you.
Don’t leave it to the last minute. Speak to an adviser well in advance of making your offer so you know your finance is in place and can be arranged quickly. This could be crucial if there’s competition for the property you’re keen to buy.
Don’t forget to plan for tax
A buy-to-let property is an investment and you’ll hopefully generate both income and capital growth. Remember that both these things are potentially taxable.
If you have a buy-to-let investment then you will generally have to complete a Self-Assessment tax return every year. Even if you have just one property, it is classed as a property business. You’ll have to declare income and any allowable deductions, for example maintenance or letting agency fees.
Michael Holmes, property expert for the National Homebuilding and Renovation Show which takes place at the NEC this March, urges landlords to consider the tax implications of property investment. For example, he highlights the difference between buying and selling, and buying and renting, as they are taxed totally differently.
Michael says: “Efficient tax planning can make a vast difference to your returns, especially on exit.”
Understand the risks
Property is an investment and, as with all investments, the value can go down as well as up. You should always understand the risks with investing in any property, and while average values have tended to rise over the long term you may not make a quick profit in the short term.
Michael adds: “If it seems too good to be true you can be sure that it’s not all it seems. Competition makes sure there’s no easy money. High returns are usually only available where there is high risk.”
Never buy a property without seeing it first
Many investors consider property a ‘product’ and so feel they don’t need to see it before they buy. However, there are huge risks involved when you don’t see a property before you buy it.
Photos of a property are designed to show it in its best light, and so there will be things they miss. Perhaps it’s adjacent to commercial premises or the internal photos don’t tell the full picture? Photos also can’t tell you how a house smells, or what the noise is like in the neighbourhood.
Even if you’re buying a new build, visit the development first. A cautionary tale was highlighted in the Telegraph and told the story of overseas buyers who bought flats next to the River Thames in London only to discover that the view from the flat was of a rubbish dump rather than the river itself.
Always check the property out first, and make sure your conveyancer does the due diligence.
Remember the cost of maintenance
Unlike many other types of investment, property can require you to commit to additional expenditure. As a landlord you’ll be responsible for the upkeep and maintenance of a property, and you should therefore have a fund in place to pay for any repairs that are needed.
You may incur unexpected costs such as a new boiler, roof repairs or even simple painting and decorating between tenancies.
One advantage of buying a new-build property as an investment is that they can be cheaper to maintain. Many come with a guarantee, meaning that your ongoing upkeep costs could well be lower than an older property.
Be careful if you’re unfamiliar with the legal and planning system
One of the best ways of making a profit through property is through ‘planning gain’. This is where alterations and improvements to the property can generate a significant increase in value.
You can often negotiate a good deal on tired properties or houses in need of renovation, and then add value through a renovation or refurbishment project.
Property expert Michael Holmes has a warning, however. He says: “Don’t buy into a market where you are unfamiliar with the local legal and planning system. The UK is remarkably free of corruption but many overseas markets are very poorly regulated and an unwary foreign investor is an easy target.”
Understand your responsibilities as a landlord
If you invest in a buy-to-let then you’ll become a landlord, and with that comes a range of responsibilities you should be aware of. You’ll have legal obligations to your tenants and it’s important you understand these.
For example, you may need electrical or gas safety checks or other assessments or certifications. The local authority may also have specific schemes that residential landlords have to comply with.
Factors you may have to consider include:
- Tenant deposit protection
- Gas safety
- Energy performance certificate
- Fire-resistant furniture
- Smoke or carbon monoxide alarms
- Electrical safety
If you don’t comply with regulations you can be taken to court and fined, so it’s important that you ensure you remain legally compliant.