Buying a Buy to Let Property – What You Need to Know


Investing in property is a great way to create an ongoing and steady income for yourself, whilst allowing the owner of the rented home to benefit from any rises in its value. Whilst it is an option exercised by many, what shouldn’t be glossed over is the many aspects that need to be given your full consideration. Get it right and you will likely get what you set out to achieve, but get it wrong and you could end up losing money, rendering the whole process a massive waste of time.

So, in order to give you a head start in your preparations for buy to let success, we’ve put this blog together, which contains some useful information and tips on the subject.

So, let’s get cracking!

“Is it Right For Me?”

Well, the answer to this question rather depends on the answers to the following questions:

  • Do you want something tangible for your investment, rather than investing in shares?
  • Are you ok with your capital being ‘tied up’ for an extend period?
  • Are you aware that just like with stocks, property prices fluctuate down as well as up?
  • Do you understand the liabilities you’re opening yourself up to when you buy a property?
  • Do you know that maintenance and repairs of the rental property come out of your your profits?

If you’ve answered ‘Yes’ to all the question above, then read on. If not, you may need to think a while longer about whether it’s the right investment opportunity for you, but we are here to help and you can always visit us at one of our events.

Your Obligations

When you buy a property, the chances are that you’re going to need a mortgage, unless you have upwards of £150k in cash at your disposal. Lenders will usually ask for between 20% and 40% of the overall value of the property, which means on a £200k home, you’re going to need to have anywhere between £40k and £80k in funds available for a deposit.

The legal fees tend to be more expensive if the property isn’t going to be your primary residence and you have to bear in mind that if you sell the house for a loss, you’ll have to pay the different between the selling price and the amount of your mortgage.

You’ll also have to continue to pay your mortgage in the event losing your tenants - a scary time for any buy to let landlord. Suddenly, your nest egg starts to cost you a sizeable chunk of money each month until the situation is remedied.

Capital Gains Tax

When doing your sums, you also have to factor in elements like capital gains tax. As well as paying all the fees associated with your mortgage, if you do sell for a profit, you will have to pay a percentage of it to the government. There are certain circumstances where you might be able to claim tax relief, but if you’re not living in the property, you’re going to be liable. For more details on capital gains tax, follow this link http://bit.ly/2MoQ5nU.

Your Assurances

Landlords Insurance

Whilst the subjects we’ve covered so far paint a slightly bleak picture of the life of a buy to let landlord, there are certain measure you can take to hugely lessen the risk. First of all, there are things like landlords insurance that will protect you against a range of risks that buy to let investors face.

This kind of cover is provided by all the major insurance providers in the UK and with a policy in place, you will (dependent on the insurer and the policy) be covered for things like flooding, non paying tenants and malicious damage. It might seem like a slightly unnecessary expense….until something happens.

Property Management Companies

Another way to approach the situation is by employing a property management company to take care of everything on your behalf. Many offer a rental guarantee, meaning that you still get paid, even if you lose your tenants for an extended period. This option will come at a cost, but the fees charged for the service can be added to the price charged to your tenants, so as far as you’re concerned, there’s no charge.

It’s a very popular way to enter the buy to let market, simply because it’s a low stress arrangement for the owner.

In Summary

Buy to let property investment has been and still is a very profitable avenue for many people, but it shouldn’t be something you enter into lightly. If you don’t prepare properly or do your homework, you open yourself up to all sorts of liabilities. However, if you approach the opportunity sensibly and with professional assistance, it is one of the most certain ways of achieving a consistent and meaningful return on investment.

However you enter the buy to let market, make sure you’re patient and savvy and if you’ve any doubts or concerns at all, talk to your personal financial advisor before signing on the dotted line.

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