Renting is back in fashion.
Why? Good question.
Low wages and fear of future employment prospects have caused many ordinary punters to question the sanity of entering into any long-term mortgage agreements. They know that if they were to default, they could be on the street.
There is also the general public’s grasp of the reality that at some stage in the future the UK’s long-dormant interest rates MUST rise. It is merely a question of ‘when’ rather than ‘if’ that happens.
In addition, the events of 2007-08 seriously undermined much of the faith in the old ‘safe as houses’ mantra.
So, as well as there being a lot of people who simply cannot afford to buy a house, there are others who, in the current economic climate, are fearful of entering into a 25-year home-purchase deal. Thus many no longer are convinced as to the wisdom of so-called ‘home ownership’.
It is for these reasons that buying-to-let is in vogue.
The private rental market is thriving, despite government attempts to restrict it. Currently buy-to-let landlords are housing ever-growing numbers of tenants. This entails them buying property they can then rent out. So what steps should an already-established or would-be landlord take in deciding where to invest their money, be it with a view to upgrading an existing property or buying anew on the open market?
A word of caution to buy-to-let landlords at the outset; the public are right, interest rates MUST rise at some point down the line. And when that happens, landlords, like everyone else, will find themselves making bigger mortgage repayments.
There is also a tax rise coming, with buy-to-let mortgage interest relief being axed and a 20% tax credit replacing it. Presumably landlords will raise the rents they charge their tenants. Any increase, however, must be finely balanced juggling act. Buy-to-let mortgage offers vary greatly in terms of detail and small print. Landlords should (a) employ a reliable estate agent, (b) seek advice and (c) shop around for the best buy-to-let mortgage offers.
The more thorough your research, the greater your knowledge and the better the chance of your buy-to-let investment paying off. Aria have a highly impressive portfolio of landlords whose interests they represent by providing a service of unrivalled quality, relieving the property-owner of most of the time-consuming aspects of property management, advertising the availability of property to a vast audience and offering outstanding back-up and support.
They also major in examining the backgrounds, references and credit status of tenants and their guarantors. And they are experts in advising on all things financial. One of the things to which they will alert a landlord is that if he/she is buying with a mortgage, the return they get will not be the rent-to-property price yield.
If you are a buy-to-let landlord, you can work out your annual return on investment by subtracting your annual mortgage cost from your annual rental income and then calculating this as a percentage of the deposit you put down.
For a £100,000 property which you could rent for £500 per month, you would need a £25k deposit and roughly £2,000 in buying costs.
£75k mortgage at 5% interest rate = £312.50
£500 rental income x 12 = £6,000
Difference = £2,250
Deposit + buying costs = £27k
Annual return = 8.3%
And do not lose sight of the fact that there will still be bills to be paid if that property lies vacant. Factor that – and maintenance costs - into your outgoings/income sums. Think long-term, too, not forgetting that property prices can fall as well as rise. So invest for rental income rather than in anticipation of some rapid increase in property values. Invest in property in an area where people will want to live. Ask yourself why they might want to live there?
Certain tenants match up with certain properties. Here Aria excel.
Students, young professionals and families, for example, have different needs, expectations and budgets. Aria know the market inside out. They match like-with-like. Remember location, location, location. What does your property offer in terms of local facilities - shops, transport, proximity, schools, restaurants, churches? And know that buying a property is only the first step; management is a much more demanding and continuous aspect of ownership.
While Aria will charge a fee for their services, they deal with any physical problems via a network of on-call tradesmen should anything go wrong.
Call them and see how easy – and profitable – they can make things for you, the landlord.