Buy to let, is it right for you?

Landlord. It has a nice ring to it, doesn’t it? It brings to mind heavily-robed nobility, standing on top of a castle. Looking over all the fields, with their small stone cattle sheds beneath – All of it belonging to them. All of it in their control.


Is the reality as glamorous as it seems though? Is it the dream-life that some portray, or is it stress personified? It’s important to be aware of the potential benefits, but also the responsibilities that come with being a landlord. That’s why IMC have compiled a handy guide to help you decide whether buy-to-let is the smartest next move for you.


What are the benefits?


Rental incomes have gradually been increasing over the last few years. By finding the right property and securing a good mortgage, it’s not unusual to see rental yields of between five and ten percent on a property. For example, renting a £500,000 house for a total of £2500 a month gives an annual return of six percent, while the same rent paid for a £300,000 property grants a preliminary ten percent return. – to see whether property prices are conducive to a reasonable return in your area, it’s worth using an investment calculator, just to begin building up an initial picture.


Finding the right mortgage


Once you’ve identified the right property, you’ll likely need to take out a specialist buy-to-let mortgage. Rates are typically higher and require a deposit of at least twenty-five percent. This stems from it being inherently riskier for the lender. If it’s possible, aim to lay down a deposit of around forty percent. More often than not this will unlock more flexible deals with lower rates.


When looking at how much to lend, mortgage providers will typically consider how much return you’d expect to make. Many will look at how much similar properties are making. It’s a good idea to do the same.


Further considerations


Some lenders only provide interest-only mortgages so it’s vital that you have an idea of how you’re going to repay your loan once the terms expire. Normally this involves selling the property, although other options can include using savings, investments or pensions as a repayment vehicle. Either way, it’s important to clarify to your lender as they will otherwise be extremely hesitant, or worse, refuse your loan. Most will often check at least once during the term to ensure the repayment plan is still valid.


You should also have a financial cushion ready to absorb the impact of ‘voids’. These are times when your property sits unoccupied, normally due to repairs or because new tenants have yet to move in. The duration of these voids can vary; from days to months. As always, prevention is better than the cure, so start looking for new tenants as soon as you receive notice from the current occupants.


Alternatives to Buy to Let  


Buy to let isn’t for everyone, generally, you’ll need to be earning a steady £25,000+ annually and be below a certain age (lenders are reluctant to lend to those who will be 70-75 by the end of the term). However, there’s a whole range of alternatives out there if you know where to look. Holiday lets only deal with short-term tenants, and (as their name suggests), mean that you need a hands-on approach to cleaning between guests and maintaining the property.  If you want to be completely (well, almost) carefree then property crowdfunding may be a better route for you. It’s effectively like investing in stocks, you invest in a percentage of a property then split the proceeds of the rent with your fellow investors. The only issue is that you don’t actually own the property and therefore have minimal input to what happens with it. On a similar note, returns can be relatively small; making it arguably a less attractive proposition than traditional models.


Whether you decide buy to let is right for you or not, IMC are here to give you the advice you need. From securing a mortgage to guiding you through more suitable investments, our experts are more than happy to use their years of specialist expertise in the field to help you make the most of your properties. As they say, every Englishman’s home is his castle, and we believe that you should be the lord of it. The land lord…it has a nice ring to it, doesn’t it?


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