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Sign upTen Top Tips if you are considering Buying to Let
One. Pick the right property.
Do your research! You'll want to attract the right tenants, achieve the highest rent possible for your property, and avoid void periods between tenancies.
Ask local letting agents for advise, they will tell you the location and type of properties that are highly sought after by tenants.
Consider regional variance, do apartments let more easily that houses in the area you are looking to buy? Never forget that Buy-to-Let is a medium to long-term investment.
Two. Pick the right mortgage.
With Buy-to Let slipping into the mainstream there are an ever increasing number of products to choose from. With more choice, often comes more confusion. Again- Research is the key!
Specialist Buy-to-Let mortgages hold obvious advantages. Typically lenders allow people to borrow up to 80% of the property's value, and the size of the loan is usually linked to the expected rental income. As a rough guide your lender will expect your monthly rental income to be 25% to 50% greater than your monthly mortgage payments.
Three. Include "running" costs in any calculations.
When considering a buy-to-let investment and doing your calculations don't forget about all the extra costs incurred when running a second property as a business.
As a Landlord maintenance remains your responsibility, in a house this might mean decoration between tenancies, in a leasehold property regular service charges or maintenance charges as well as any ground rent are still the concern of the landlord. Don't forget to include costs of annual gas safety checks, buildings insurance and any rent guarantee insurances you might require.
Four. Decide whether to use a letting agent or go it alone
You can manage the property yourself, or for a fee of around 15% of the gross rental income a good letting agent can do everything for you and take the hassle out of renting your property. If you do decide to use an agent remember to add these charges into the "running costs" too. For more information see our section on Letting Agents
Five. Don't judge a book by its cover! - Check out your Tenant properly.
You wouldn't hand just anyone the keys to your car, so make sure you don't take the decision on who you have as a tenant lightly either.
A good letting agent will have access to professional credit referencing services and will use specialist companies to assess the tenants suitability. Decisions are made on credit scores or on the basis that nothing of a bad or detrimental nature shows against the applicant. References are also taken from an employer, and as a general rule the tenant must have been in continuous employment for at least 6 months, and earn at least 2.5 times their rental commitment. A tenant assessment would not be complete without references taken from a previous managing agent or landlord.
Six. Choose the right tenancy agreement.
Never, under any circumstances proceed without a tenancy agreement in place. A letting agent or solicitor can help you with this, and there are many off the shelf "create your own tenancy agreements" that you can buy from most good stationers. Different agreements apply in Scotland to England . Equally companies and individuals and lodgers will require different tenancy agreements.
Seven. Make sure you are covered.
As landlord you are responsible to insuring your property, buildings or contents. Many owner occupied policies do not give you the cover you require. Refer to our section on Insurance for more details.
Leaseholders letting out their flats will often need to inform their management company that the property is let. The management company can then ensure that the buildings insurer is advised.
If you let a property that was formerly your main residence and you do not have a buy-to-let mortgage you will need to inform your mortgage company to make sure you are not in breach of any terms. Many mortgage companies simply charge a small admin fee to process this information.
Eight. Only two things in life are certain. Death and Taxes - Even for a Landlord.
Yes, rental income is subject to income tax, and they add it to your other earnings. In addition any profit you make when you sell your buy to let property will be liable to Capital Gains Tax (CGT) charged at the highest rate of income tax. As with all tax related matters seek professional advise.
It's not all bad news, there are a number of expenses that can be offset against the rent you receive to reduce your tax bill, including letting agency fees, mortgage interest costs and where the property is furnished a 10% allowance for wear and tear.
Nine. Produce a detailed inventory
This is especially important for any property that you let furnished. In fact according to Tony Booth - Author of the Buy-to-Let Handbook "The inventory of furnishings and fittings is one of the most important documents a landlord can create."
The inventory is your only proof of how the property was provided at the outset. It should accurately describe, in fine detail everything within it. Should a dispute have to be settled in court, this document will need to paint a tangible picture to people who have not seen the accommodation so that a judgement can be made.
Ten. Insist on a deposit.
It is usual to insist on a deposit of between 4 and 6 weeks rent. Holding this deposit will offer protection to you against any damage caused by the tenant or dilapidations. A deposit is not to be used for compensations for general wear and tear.