Buy to let
Q: I’m considering investing in a buy-to-let property, what should I be thinking about?
A: Firstly, you need to decide whether you want to buy a property which produces a higher rental yield (ratio of income to purchase price), or a property which has better long term price growth potential. Properties which give higher yields tend to be those in buildings such as ex-local authority blocks, while properties with higher capital growth potential are normally the more attractive properties where you might find a more emotional buyer who is prepared to pay a premium when you do come to sell.
As with any investment, you need to do your sums very carefully, factor in all costs relating to the purchase – stamp duty, legal fees, survey fees, mortgage fees etc. Once you own the property, there are ongoing costs, including annual service charges, maintenance, gas safety certificates, agency fees, management fees (if you choose to take that route), all on top of your monthly mortgage repayments.
It is advisable to set out all these costs clearly as well as anticipating void periods throughout the year so that you are sure you could still afford the mortgage repayments and cover these fees despite not earning rental income. Be prudent and build a contingency layer into your finances.
Then, compare these costs with the estimated rental income, however, whatever you do, be cautious with your rental income assumption; if you’ve found the property you want to buy and you ask the selling agent what they think the property will let for, get a second opinion. My advice is to always contact a couple of other local agents and ask them what they think the property would let for, that way you can obtain an impartial estimate.
Once you have done the above, only then can you decide whether the purchase stacks up as a genuine investment.
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