7 Tips For Buying Your First Buy-to-let Property

You might have read some blogs, and you are itching to go as a landlord. As you’ll know by now, you need to be careful with your investment, know the law, have a network of tradesmen, find and build a rapport with trustworthy tenants and document your financial activities correctly. It’s no easy task.

If you are considering the pros and cons of buying your first buy to let property, here are 7 of our top tips for doing just that:

What’s the why?

Why do you want to invest in a buy to let property? It’s going to take considerable effort and possibly sacrifice financially. Even if you are sat on a fund or inheritance sum, there are several other ways to invest. So, why do you want to get into the property game?

Why put yourself through it? Many people see dabbling in the property market, possibly on top of full-time employment is because you dream of a luxurious retirement or you want to set your children up with property or healthy inheritances. Everyone needs a why, in order to achieve a goal. So, what’s yours?

What’s the exit plan?

For most people, whatever their business, there’s an exit plan. Over one person’s lifetime, which is limited, there has to be a reason and an exit plan for taking on a 25-year mortgage. Of course, you don’t necessarily have to sell at that point. But you could.

I used this fun calculator from the Bank of England to reveal that in the last 25 years, prices have gone up almost double with a compound interest rate of around 2.7%. The exact figure being my £10 basket, which now costs £19.66.

Most houses, on the other hand, according to saville.co.uk, can achieve an increase in the price of over 300% over 25 years.

You might get an amazing return on your property if you are a contractor yourself. If you can manage the repairs yourself or within a low-cost team, you could stand to make a 600% return on your investment. You might have only managed to cobble together 5% of the property price. So, just £5000 on a £100,000 property. But 25 years later, that property might be worth £500,000. The bank only needs £100,000 back and you are left with a cool £400,000. Even with inflation, that’s a nice little retirement fund per property. If you had a portfolio of five £100,000 properties, you could sell one for £500,000 and pay the mortgages off on all five. You now, own four properties outright, and you can sell or continue to rent with no mortgage payments and leave substantial inheritances.

Work out carefully, the mortgage term you need, and roughly what you want to do at the end of it, and ensure you have the funds to pay the mortgage if you don’t want to sell.

Do I have the time?

Managing a property and a tenancy can take a considerable amount of time. If you have your why and your exit plan in focus, you need to ask yourself if you have what it takes to juggle this further responsibility on top of others, such as full-time employment and child care.

Am I cut out to be a landlord?

One of your main reasons for getting into this business is having an affinity for this kind of work. The costs that can wrack up from grabbing a tradesperson out of the yellow pages can turn a profitable business into a loss.

Great landlords have a reasonable understanding of the building trade and close networks. For example, Dad is a plasterer, your brother is a plumber, your cousin is an electrician, you can paint and decorate. And your mum and sister go backwards and forward to IKEA and are highly capable of putting up furniture and designing within a budget.

Dad will be happy to contribute to your success and business. He’s not after payment for fitting the kitchen. That’s the kind of workforce that great landlords and, in particular, flippers have.

Location, location, location

One thing to be careful of is the location. As a landlord, you may be looking at picking up some local properties. But if you live in an area where house prices have increased at a far lower rate than others, buying further afield is a better idea.

For sure, if your job is in County Durham, then you’ll likely have to live there. But with house prices increasing only 155% in the last 25 years, unfortunately, that’s less than inflation. For a buy-to-let property, it’s worth looking a little further. South Lakeland and Harrogate house prices, for example, have increased by 312% and 305%, respectively.

Calculate your operating costs realistically

You can use a calculator to get an estimate of the interest-only repayments you would have to make. It’s all very well to see that you can easily get an interest-only mortgage of less than £200 on a 2-bed house in the North of England. With rents well over double, you might think you are in for a killing. However, you need to calculate all your operating costs from your gross income, and there’s far more than the mortgage to deduct.

There are expenses such as landlords insurance, and two significant things are often overlooked. Don’t forget, the government still wants a slice of your profits and depending on your day job, that could be up to 40%. In addition to this, the amount you need to set aside for maintenance and repairs is calculated at either 1% of the property value or up to 50% of the rental income.

Know your legal obligations

We can’t stress this enough, but providing a home and shelter for people is a serious responsibility. You are responsible for making sure that the home is free from hazards. You need to have gas appliances checked annually, as well as being responsible for PAT testing of electrical appliances. The structure of the house should be sound, and any dampness or mould dealt with. In addition, there must be smoke and carbon monoxide detectors and fire extinguishers in larger properties.

Fall foul of these legal requirements, and you face a jail sentence, not least you may have been partly responsible for the loss of human lives.

7 tips for buying your first buy-to let-property: Things to Remember

If you are still on the fence about becoming a landlord, then make sure you consider all these tips carefully.

  • Everything in life needs a why. Are you doing this to leave your kids with a great start in life? A property or a lump sum to be inherited? Or perhaps, you plan to retire earlier?
  • You need an exit plan and date. Therefore, you may need a longer or shorter mortgage term depending on when you hope to sell up. You’ll have to be flexible and may need to wait to get the best selling price.
  • Being a landlord of a few properties will be a reasonable drain on your time, so make sure you are prepared for this.
  • Do you know anything about owning and looking after the property and have connections to tradespeople?
  • Make sure you buy in an area that will rise by the very least inflation. Research where you can get the best return while still being able to manage the property yourself.
  • Make sure you consider all the costs involved in being a landlord before you begin and that you are also aware of your legal responsibilities.

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