The process of purchasing an investment property is very different to that of buying a home for example, for you and your family to live in. There are many other considerations that must be taken into account before making this big step.
The buy-to-let boom of recent times has seen many more competitive mortgage deals become available, adding fuel to an already blazing fire. Many borrowers have found that they have come unstuck whilst jumping on the bandwagon without properly researching the proposed venture.
Thorough research of the market is essential. Even if you decide to borrow a substantial segment of the purchase price of the house, it will usually cost you a considerable amount to set yourself up as a landlord.
The location and the type of property you are going to purchase are the two most important factors to consider - for example, demand might not match the number of rental properties in certain areas and one bedroom flats may be easier to rent out than two bedrooms.
It is always a good idea to approach a number of letting agents in the proposed area you wish to buy, in order to gain an insight into rental demand - this is also a good way of finding out how much rental income you can expect.
When you look to purchase your own home, a lender will look at your income in order to assess how much they would be prepared to lend. With a buy-to-let mortgage however, mortgage lenders calculate how much they are willing to lend in a different way.
Many lenders will expect rental income to cover at least 130 percent of your monthly mortgage repayments - so make sure that you calculate your sums correctly. Once you have made your calculations and found a suitable area you wish to buy in, you can start shopping around for mortgages.
Many lenders offer mortgage advances on buy to let purchases of up to 75 percent of the property value. On certain buy to let schemes however, it is possible to borrow as much as 85 percent of the value of the property.
There are many different buy-to-let mortgage deals that can be arranged - You can choose between fixed, discounted and variable rates.
Some lenders may insist that you use an agent to manage the property. If this is the case then you could expect to pay up to 15 percent of the gross rental income on management fees. By using the services of an agent you can expect them to source tenants on your behalf, check references and collect the rent.
As with other types of mortgages, it will be a condition of the lender that you have in place a buildings insurance policy at the very least. Contents cover is also highly recommended however it is not usually obligatory.
Buy To Let Action Plan
1. Stay clear of areas that are already saturated with buy-to-let properties - supply can often outweigh demand, which could make finding tenants a difficult task.
2. It pays to negotiate! It may seem as though competition is fierce for property although if you are prepared to be patient then you could land yourself a bargain at well below market value.
3. When decorating, it is a good idea to invest that little bit extra. Ask yourself, could you see yourself living there? If not then you may wish to review your decor.
4. Join a landlords association. For about 100.00 a year you will have access to help and assistance on matters such as tax issues and legislation.
Author Resource:-
James Copper writes on all areas of finance. He works for Any Loans who offer Halifax Loans and Secured Loans to UK homeowners.
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