Buy to Let guide part 2
Buying something for someone else is never easy. You worry they won’t like it, or it won’t fit, or it’s too expensive.
When that something is a house, bought for an as-yet unknown someone to live in, you can multiply those concerns by 10.
Such are the dilemmas of a would-be landlord who is looking to invest in a rental property.
Here, in Part 2 of our series on buying to let, we’ll tell you how to make the right moves in the rental property market - and avoid a few bad ones.
Our informed guide is Tina Hayton-Banks, Head of Customer Service for NMS (Nottingham Mortgage Services) - a subsidiary of The Nottingham - which offers advice to would-be landlords and searches the whole of the mortgage market to find them the best mortgage deals.
The first thing to do is get a thorough understanding of the rental market in the areas you are looking to buy. Go on to the internet, visit estate and letting agents, look at the property pages in local newspapers: see what properties are out there, how long they take to let and what rents they command. Learn what types of properties are popular, quick to let, and suit your budget in terms of price and potential rental income.
“The rental properties being advertised generally give you a fairly good guide,” says Tina. “But remember to give yourself a 5% to 10% leeway on rents. Tenants will want to negotiate and they will always want to negotiate down.”
Next on your to-do list should be a series of questions. What kind of rental do you want: fully-furnished or unfurnished? Do you want to manage the property yourself or pay a lettings agent to look after the property and be the go-between between you and the tenant? Who do you ideally want to let to: students, a professional couple, a family? - this may be a question asked by lenders as some have restrictions on types of tenant or multiple occupancies.
Answering these questions will help you to narrow your search - ruling properties in and out.
Remember that the house or flat - however much you might like it - is not for you to live in.
Put yourself in your preferred tenant’s shoes, see things from their perspective. Are they going to want to live in that type of property, with those facilities, in that location? Will it tick their boxes in terms of access to decent local schools, shops, nightlife, parking, public transport, commuting routes, etc?
Be honest with yourself. Does the property need lots of work - major or cosmetic - to make it tenant-friendly? How much is that going to cost? Will it deliver your required level of rental income? How long will any improvement work take? Remember that every month you are without a tenant is a month when you are carrying the full cost of the mortgage.
Lots of us have family and friends who rent. Speak to them, get their opinions, Tina advises.
Talk to estate agents and get their opinion on how suited a property will be, but do your own homework too.
Finally, you need to be sure that the monthly rental income from your property is 25% higher than your mortgage repayments.
Lenders will insist on it - and they will send out a valuer to make sure that’s the case before offering you a mortgage.
“Be realistic, be sensible,” says Tina. “Otherwise, you could find yourself wasting a lot of time and money.”
Read our series of buy to let stories