‘Generation Rent’

So with ‘Generation Rent’ on the rise, is it time you gave serious thought to becoming a buy-to-let landlord? Fundamentally, buying a buy-to-let property works in a very similar way to any residential property. You can either pay with cash or with a mortgage, although the type of mortgage will differ slightly. The main difference is how the lender categorises your primary income source – usually they’ll look at your potential rental income over your personal income, which is usually a secondary factor.

In recent years, buy-to-let investors and landlords might feel as if they have been deliberately targeted, with changes to mortgage interest tax relief, the introduction of stamp duty surcharges, and a seemingly endless range of new legislation and regulation to contend and comply with. However, buying property as an investment has proved to be a successful and lucrative investment decision for some. So if you’re keen to become a buy-to-let landlord and want the best chance of success, here are our top tips on getting started.

CHOOSING A LOCATION
Location is crucial when choosing a buy-to-let property. Choosing the right one will ultimately depend on your target tenants. You need to consider carefully the types of tenant you are targeting before you invest in a buy-to-let property.

• Families will want to be in the catchment area for good schools and green spaces.
• Young professionals will want to be close to transport, with a quick journey to the city centre.
• Students, of course, will want to be close to the university they study at and within walking distance of clubs and bars.
• Additionally, proximity to a supermarket, pubs and restaurants, and parks and open spaces are all factors to consider.

DECIDING ON A PROPERTY
Before you start to view properties, do plenty of research on the rental market in your area. Find out about the type of tenants that are most common and which type of properties rent the fastest. Look at which features seem to be most desirable, such as a garden or off-street parking, and which don’t seem to attract renters. Based on your findings, you can create a list of what you’re looking for in a property. If you’re willing to put in a lot of work to improve a property before you let it to tenants, you may be able to find a better deal that will provide a greater return.

SETTING YOUR BUDGET
There is always a risk that your investment won’t return the money you’re hoping for, but you shouldn’t buy unless you’re confident that the income you’ll receive from the property exceeds the costs of running it. When you create your budget, the rental income should cover the majority of your costs, but it’s important to have a contingency budget just in case things go wrong.

Include the cost of mortgage repayments, repairs, maintenance, insurance and marketing. For example, you may need to pay out for repairs, or your property may be empty for a month or two in between tenancies. Make sure you have enough money to cover these expenses, just in case. Look at the average rent charged for similar local properties to be sure that you’re being realistic about the income you’ll achieve.

FINDING THE RIGHT BALANCE
Typically, the properties that generate the most income also involve the most work, for example, student lets with multiple bedrooms, or Houses of Multiple Occupation (HMOs). Properties that involve less work, such as studio flats, typically generate less income. So, you’ll need to find the right balance personally.

CHOOSING A LETTING AGENT
A letting agency may be an extra expense, but they may be beneficial in the long run. Consider what’s best for you before making any decisions. Working with a letting agent will help you navigate some of the challenges you may face as a first-time landlord, such as how to price your property and avoid it sitting empty. You should speak to several letting agents to find out about their fees and what expertise you’ll get in exchange. You’ll have a choice between online agents, which have lower fees, and high street agents, who tend to have more experience and local knowledge.

CHOOSING A MORTGAGE
A buy-to-let mortgage is specifically designed for a property that is being purchased to then rent out to tenants. The outstanding loan is then added as a charge on the property by the lender. This will always be done on any purchase unless you’re remortgaging, where a new charge would be raised. Landlords generally go for interest-only mortgages.

This is because monthly mortgage payments are less when compared to buy-to-let mortgages on a repayment basis. The additional monthly income can then be used to buy another property and so on. Buy-to-let mortgages typically have different rates and may require larger deposits when compared to residential mortgages. There are various different options to consider, so it is important to discuss your options with a professional mortgage adviser.