1. Choosing a buy to let property
Make sure the property is suitable for letting – an obvious statement but sometimes overlooked! You are more likely to find tenants for a city centre flat than a country cottage.
Avoid purchasing a property which has potential maintenance problems, as this could be a constant drain on your resources.
2.Arranging Finance for a buy to let property
In today’s market Landlords need a deposit of at least 25 per cent of a property’s value to obtain a buy-to-let mortgage. Lenders will also take into account is rental cover – the amount of rent that covers the mortgage. Lenders commonly insist on 120 per cent or even 130 per cent cover to ensure that landlords have a buffer to pay for running costs.
Tenancy Deposit Scheme
Since April 6, 2007, landlords taking tenancy deposits have to join a tenancy deposit scheme to protect the money and ensure that a fair amount is returned to the tenant at the end of the tenancy.
3. Finding tenants for your buy to let property
A letting agent can prepare tenancy agreements, find a suitable tenant and generally help with managing the let including providing advice on inventory, condition reports and changes to utility accounts and council tax. They will also collect the rent and pay the balances to your account. Charges typically range from 10- 15% of the rental income.
4. Rental returns on a buy to let property
A rental yield is simply the return on the capital, so if the property value is £100,000 and a landlord receives £4,000 in rent, the yield is 4 per cent. In addition to this the landlord has to consider the capital value of his asset. Whereas a few years ago when property prices were increasing rapidly this gave a high overall return, recent falling property values have led many buy to let landlords to take a much more cautious approach in purchasing property.
Tenancy Key Fact
The tenant is responsible for all utility bills, council tax and the TV license fees. You will have to bear any legal costs associated with drawing up a formal rental contract.