Five BUY-TO-LET Must-Knows.
If you find yourself considering investing in a buy-to-let property or finding ways to double up the returns of an existing one, it may be wise to carefully analyze the following tips before making your decision.
1. Market Research – As investing in a buy-to-let would result in you strapping capital to a property that may rise or fall in value depending on market volatility, carrying out a thorough research of your target market would be a wise first step.
Remember, purchasing a property for the purpose of buy-to-let often involves you devoting a couple of million bahts towards a property against some mortgage. This in turn could result in the following – you could either make huge leveraged profits way over your mortgage debt (if house prices rise) OR you could incur losses in the form of deposit depletion while your mortgage stays the same (if house prices fall).
2. Ideal Location – It is of vital importance to pick properties you like and can afford to buy in locations where people who may want to live in those properties may choose. Factors like – Is the property in/near a commuter belt?, how far is the nearest education institutes?, is there a supermarket?, does the town have any unique features that sets it apart from the rest?; though simplistic in nature, the answer to these questions may end up making or breaking your buy-to-let profitability in the long run.
3. Calculate The Costs – Before signing off on your purchase, it’s a good idea to jot-down the costs of houses you have shortlisted and the amount of rent you are likely to get from each. You would ideally want the offered rent to cover 125% of your mortgage repayments, with many a landlord demanding rates much higher than residential mortgage deals. Note – In the event that the house lies vacant for a considerably long period of time, maintenance cost needs to be accounted for as well.
4. Source The Best Mortgage – You may be tempted to go for the first buy-to-let mortgage deal you come across, however it is highly advised that you speak to a professional independent broker about the various mortgage deals out there as well as picking the one that best suits you. Doing your own homework will stand you in good stead for your meeting with the broker.
5. Cater To Your Target Clients – Many an investor pours money into a buy-to-let that he or she fancies, thereby completely ignoring the target tenant who would eventually occupy the premises and on whom the success of their investment resides. For example – Students may want a house that will be comfortable and easy to clean, the working class may want trendy and modern surroundings but not too cluttered with objects, and a family would ideally want to fill up the space with personal belongings thereby needing a more or less empty space. Note – It is not a bad idea to take out an insurance policy against the failure of your tenant to pay rent.