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First time buy to let investor? Here are our tips for success.

Posted on 21 September 2017
First time buy to let investor? Here are our tips for success.

For most people, buying a house will be the biggest purchase they ever make and this can make it a difficult and stressful experience. If you’re investing in a buy to let property, however, especially for the first time, it can be even more intimidating. What kind of mortgage should you get? What is rental yield? Who are your target tenants? Should you use a letting agent?

At Aria Residential we’ve helped many prospective landlords go from first time property investors to growing their portfolio, so we have the expertise to help you whatever your property ambitions.

Research the market. 
If you are new to buy to let, what do you know about the market? Do you know the risks, as well as the benefits? Make sure buy to let is the investment you want. Your money might be able to perform better elsewhere.

UK interest rates have been at historic lows for several years, so other saving and investment routes have not been offering the returns they used to. This has helped make buy to let appealing, but recent legislative changes could make it a more difficult. 

Under Section 24, mortgage tax relief on second homes is being phased out between April 2017 and 2021, this could lead to landlords with outstanding mortgage debt facing higher tax bills. At the same time there has been a 3% surcharge added to Stamp Duty on second homes, further increasing taxes on landlords.

None of this means you can’t necessarily profit from a buy to let investment, but anyone considering entering the sector needs to understand the conditions in the market.

Think about your target tenant.

When making a buy to let investment, it’s important to have a clear idea of the kind of tenant you want to rent to and to select a property that’s appropriate for that section of the market.

Who are your target tenants and what needs do they have? If you’re planning on renting to students, the property needs to be easy to clean and comfortable, but it doesn’t need to be luxurious. If they are young professionals it should be modern and comfortable, but they’ll probably want to bring some of their own character to the house. A family, especially one with children, will have plenty of their own belongings and need a blank canvas.

Remember that allowing tenants to make their mark on a property, such as painting, or adding pictures or taking out unwanted furniture makes it feel more like home. Tenants who feel like they’re at home will stay for longer, which is great news for a landlord as an empty property costs money since rent isn’t covering mortgage payments.

When thinking about your target tenants, it’s important to pick the right area for them. Students will want to be near their university, families will want to be close to good schools. You might also want to consider how central an area is, what transport links it has and what facilities are close by.

Get the best mortgage.

Don’t just walk into your bank and building society and ask for a mortgage. If you are looking for advice consider using a specialist buy to let mortgage broker. Remember, asking them for information means you are under no obligation to use them.

It’s important to understand the mortgage products available for investors. Buy to let lenders typically want rent to cover 125% of the mortgage repayments and many are now demanding 25% deposits, or even larger, for rates considerably above residential mortgage deals. The best rate buy to let mortgages can also come with large arrangement fees.  

Go for rental yield and remember your costs.

Remember, if you are buying with a mortgage, rent-to-property price yield will not be the return you get.

To work out your annual return on investment subtract your annual mortgage cost from your annual rent and then work this sum out as a percentage of the deposit you put down. Don't forget tax, maintenance costs, insurance, agents’ fees and other expenses will eat into your return.

We have all read the stories about buy to let millionaires and their huge portfolios, but the days of double digit house price rises are gone, so experts say invest for income not short-term capital growth.

When considering properties use their yield, the annual rent received as a percentage of the purchase price. For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5% yield.

Rent should be the key return for buy to let. Most buy to let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time. If you can get a rental return substantially over the mortgage payments, then once you have built up a good emergency fund, you can start saving or investing any extra cash.

Once mortgage, costs and tax are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments, or to pay off the mortgage at the end of its term. This means you will have benefited from the income from rent, paid off the mortgage and hold the property's full capital value.

Get a good deal on the property.
This might sound obvious, but the lower your mortgage, the better your financial position will be, especially if you take an interest only mortgage.

As a buy to let investor you have the same advantage as a first time buyer when it comes to negotiating a discount.

If you are not reliant on selling a property to buy another, then you are not part of a chain and represent less of a risk of a sale falling through. This can be a major asset when negotiating a discount, especially in a tough market such as the one we have now. Make low offers and do not get talked into overpaying.

It is also worth considering properties that need renovating as a way of boosting the value of your investment. They may seem unappealing at first, but properties in need of renovation can be negotiated hard on and bought at a better price and then improved to add value.

This is one way that it is still possible to see a solid and swift return on your capital investment. However, remember to ensure that the price is low enough to cover refurbishment and some profit and that you allow for the inevitable over-run on costs.

A good rule to follow is the property developers' rough calculation, whereby you want to the final value of a refurbished property to be at least the purchase price, plus cost of work, plus 20 per cent.

Improve the property.
Even properties that do not need a full scale renovation might benefit from some improvements. This can be as simple as giving the walls a fresh coat of paint, or could involve replacing the old and tired kitchen, or buying newer white goods to replace any older models. It might be worth adding a security system to give your tenants some extra peace of mind while they’re living in your property.

Understand the risks.
Buying a property to let is an investment and before you make any investment you should always understand the risks as well as the potential rewards. House prices can fall and if this happens, will you be able to continue holding your investment? What will happen if you can't remortgage?

Even in popular areas properties can sit empty. One rule of thumb many buy to let investors apply is to factor in the property sitting empty for two months of the year. This gives a substantial buffer.

Homes often need repairing and things can go wrong. If you do not have enough in the bank to cover a major repair to your property, such as a new boiler, hold off on your investment until you’re prepared for these costs.

Decide if you want to use an agent.
Buying a property is only the first step. Will you rent it out yourself or get an agent to do so? Agents will charge you a management fee, but will deal with any problems and have a good network of plumbers, electricians and other workers if things go wrong.

You can make more money by renting the property out yourself but you will have to be prepared to give up weekends and evenings on viewings, advertising and repairs.

If you choose an agent you do not have to go for a high street presence, many independent agents offer an excellent and personal service. Select a shortlist of agents and ask them what they can offer you.

Contact us.
At Aria Residential, we’re property management experts, so if you’re ready to make your first buy to let investment, get in touch and make the most of our expertise. Take a look at our website or visit us in one of our branches on Belfast’s Lisburn Road or in Templepatrick.