This section is for prospective landlords who are considering buying a property to let, and have little or no experience in the private rented sector.
Since lenders made it easier to obtain mortgages to buy properties to rent out, Buy To Let has gained immense popularity amongst landlords. Handled correctly, this type of business venture can be immensely rewarding, both in the sense that you are providing accommodation for people who need it and making money into the bargain.
Points to Consider Prior to Purchase
Research the area in which you are thinking of buying – be prepared to pay more in areas around universities, or city centre developments
Whether to buy a flat or a house? Depending on area, houses are usually more popular than flats. Rentals in and around cities tend to be more expensive, so house or flat shares are popular. Several people contributing to the rental pot can afford a better quality property in a more desirable area. Most of the houses within a 3 mile radius of Birmingham city centre are late Victorian or Edwardian, and whilst they are the most popular type for renting, you can expect ongoing maintenance costs due to the age of these properties. Flats, on the other hand, usually have minimal maintenance outlay. If you are considering buying a flat, you should take into account the fact that it will probably be leasehold, and the number of years left on the lease will feature in the lenders criteria. Generally if there are 55+ years left on the lease it will be mortgageable, but if you buy a property with a low lease, you should explore the possibility of buying the freehold.
Think about the type of tenant you want to attract – for example single professionals are a good bet for a high rent income, however bear in mind that professionals will expect a very good standard of accommodation which may initially mean more financial outlay. Families are a more stable, less transient client group, but are sometimes limited by budget and in comparison to singles may not provide as good a return on your investment. Students can make ideal tenants if the property of your choice is in an area with good access to colleges or universities. Properties occupied by students have to meet criteria which may seem onerous to uninitiated landlords; apart from health and safety rules which apply to all rented properties in general, student properties have to have (depending on size and local Authority) interlinked smoke alarms and emergency lighting, heat detectors in the kitchen, fire-doors etc. Expect heavier wear and tear on a house occupied by students. However, the upside is that the tenancy agreement should be at least 9 months or 12 months in length and rents are generally charged per person per week, which increases the overall rental value of the property above that which you would receive on an ordinary let.
The cost of buying the property. You need to ensure that whatever property you buy will achieve a high enough rental income to cover your mortgage, your buildings insurance, letting agency management fees, possible repairs and maintenance - and enough left over to make some profit.
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