Despite the uncertainty in the housing market, the prospect of buying a second property – or perhaps a third, fourth or fifth – to rent out is still attractive to a lot of people.
Recent research comparing the England and London property rental sector with world economies places England above 159 nations – specifically, between Ethiopia and Sri Lanka. London alone, where the sector is worth £21 billion annually, would be placed above 124 countries, sitting above North Korea but behind Latvia.
And with home ownership for first time buyers still a pinch-point for the market in spite of a number of High Street lenders recently announcing attractive mortgage products for first-time-buyers, the rental market is expected to continue to grow.
There are, of course, considerations that any prospective landlord would need to consider carefully. As Money Week noted recently, changes to Stamp Duty, mortgage interest relief and lettings agency fees , have put challenges in the paths of amateur landlords who may otherwise have been attracted to ‘dabble’ in property as a source of income.
That said, profitability is also partly down to that old estate agency maxim of location, location, location. If you own a rental property in a highly desirable area, particularly in London, it’s likely to be easier to let at a good rent.
That doesn’t guarantee profit, of course, but a property in the right place is an obvious must if you’re to have any hope of making a decent yield on your investment.
So, if you’re considering a buy-to-let investment and we assume you’ve got the basics right, what are the mistakes you need to avoid?
Not minding your own business
In the end, a rental property is a business. It may not be a business with massive turnover or huge margin, but at the most granular level, it needs to at least break even. That means being prudent over what you invest in it – both in terms of real costs and your own time and effort, both of which have a value.
If decorating, building works or ground and garden maintenance is needed, that will eat into your margin, so be pragmatic about where and what you invest. If a cheaper own-brand paint will serve just as well as the high-end stuff, that’s what you should consider using.
Similarly, if the time and effort you spend dealing with the management of the property is going materially reduce the amount you can earn from your day job, that needs to be factored in, too.
There are a lot of landlords out there who failed as property entrepreneurs because they didn’t realise or remember their buy-to-let was a business – but if you keep the business side of your investment in mind, you’re less likely to become one of them.
Failing to understand your responsibilities
As a landlord, you’ll have a lot of statutory responsibilities and if you don’t understand what you have to do (and what you don’t have to do), life can get tricky.
Your contract with your tenant and the rental agreement they have with you depends on both of you doing certain things.
Among many other things, you’ll need to get certificates and undertake responsibilities for certain repairs – your tenants will be required to give you access on an agreed arrangement, pay the rent on time and keep the property in good order.
If you – or they – fail to do what you’re required by legislation to do, someone could be in breach of contract.
Failing to get the right cover
This is a crucial thing to get right. The simple fact is that ordinary household insurance is highly unlikely to cover your property.
Because your property is occupied by people who may not treat it with the same respect you would as the owner, and because there’s a chance it will be vacant at times (for example, between lets), insurers consider buy-to-let property to be a different type of risk to that of an owner-occupied home.
You’ll need to get specialist landlord insurance to cover your building (and, if you’re letting a furnished property, its contents – if it’s unfurnished, the tenant will be responsible for insuring their own possessions).
We can help you to find a suitable product that offers you the best cover for your needs. Call us on the number below to speak to a member of our friendly team and find out more.
Not planning to plan
Inevitably, a buy-to-let will generate expense. It’s likely you’ll have to do repairs to the property that you may choose not to do – or to delay – if it were your main residence. The boiler might need to be replaced. The property will almost certainly need redecorating from time to time – and probably more frequently than you would do if you were living in it.
Most of the expenses you currently associate with your own home will crop up in some form at your buy-to-let, so it makes sense to ensure you’re budgeting for those over the long-term so you aren’t hit with any nasty surprises.
Getting your buy-to-let investment right doesn’t need to be an arduous process – and it can save you money and time in the long run if you start as you mean to go on.
If you’re considering buying an investment property and want to generate an income from it, come and talk to us about how our expert mortgage and insurance advice can give you the peace of mind of knowing you’re set up for the best chance of success.
Want to know how other clients felt about working with Oportfolio? Watch Gus and Selena’s video story!
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.
by Oliver Whitehead - 10 May 2019