The 5 key actions for buy-to-let success
When looking for the best return on their savings more and more people are turning to buy-to-let as an alternate investment choice. However, buy-to-let success is not just about buying a property, finding a tenant and watching the profits roll in. There are 5 key actions that you must take to give yourself a fighting chance of buy-to-let success.
1. Create a business plan
To achieve buy-to-let success you need to treat your investment as a business and all successful businesses start with a business plan. The best way to create a business plan is to ask yourself a few questions.
What is the purpose of your buy-to-let investment?
Are you needing to create an income or are you looking for long term capital growth or both? If you decide on the purpose of your buy-to-let investment at the outset you will be able to stay motivated during the inevitable bad patches when repairs or void periods raise their ugly head. Buy-to-let success requires commitment over a number of years and is not a get rich quick investment, being realistic with your expectations is a key element.
What type of property are you going to invest in and in what area?
If you start your buy-to-let journey not understanding the type of property you are planning to choose and what area you will choose then any buy-to-let success you achieve will be more luck than judgement. You will need to invest in properties and areas where there is rental demand and not invest in a property just because you like the look of it. This is a business so make sure your are getting the best return on your investment while keeping the outgoings to a minimum.
Are you planning to buy just one property or are you planning to build a portfolio?
Many buy-to-let investors only ever invest in one property and this meets their personal needs. Others see their buy-to let success as building up a portfolio of a number of properties with the potential of creating even bigger returns. Deciding on the number of properties at the outset will help you when looking at the commitment needed by yourself in terms of money and time.
What is your investment period?
Many buy-to-let investors are hoping to supplement their pensions with the income and capital growth created, others are very relaxed regarding their investment period. However, there will come a time when you may need to cash in your investment either as part of estate planning or changes to your circumstances. Understanding the time period for your investment is a key part of your buy-to-let success story. It's great having capital growth on paper but much better in your bank account.
2. Sort out your finances
How much are you prepared to invest in your buy-to-let success story?
Whatever amount of money you are planning to invest you must be clear that this is a long term investment and access to your money will not be quick or simple. Make sure you are spreading your investments over a number of different asset classes and not putting all your eggs in one baskets.
Are you planning on obtaining a buy-to-let mortgage?
If you are looking to obtain a mortgage to finance your buy-to-let then you need to shop around to get the best deal for your circumstances.
- First use this calculator* to find out how much a lender is likely to lend you
- Then source the best deal for yourself or use the services and knowledge of a professional mortgage adviser
- Lenders are very specific about what they are looking for before they offer you a buy-to-let mortgage. Read this article 'Buy-to-let - What lenders are looking for'
3. Decide how you are going to mange your buy-to-let investment
One of the issues with investing in a buy-to-let property is the ongoing management. From collecting rent to boilers breaking down there is always something to do in managing your investment. If you decide to do the management yourself then you need to have some reliable tradesmen who you can call on in the event of emergencies. You will also need to deal with all the paperwork involved in a buy-to-let, from referencing tenants to complying with legislation. On the other hand you could leave all the headaches behind and employ the services of a letting agent who will offer a range of services from collecting rent to full blown property management, at a price. It is vitally important to your buy-to-let success that you get the management of your investment spot on to ensure your tenants are happy and stay with you for a long time. Read my article - Being a landlord: Using a letting agent vs doing it yourself for more information.
4. Vet your tenants fully
We have all heard horror stories of tenants wreaking havoc or running a cannabis farm in a poor buy-to-let property. Whilst you can never be 100% confident of getting good tenants you can increase the odds considerably by making sure you fully vet your tenants before offering them an agreement. A letting agent can do this task for you at a reasonable cost and increase your chances achieving buy-to-let success.
5. Understand your legal responsibilities
When you become a landlord for the first time there are a number of legal responsibilities that you must adhere to for the safety of your tenants. Failure to comply with this legislation can have catastrophic consequences which could result in imprisonment for serious or persistent breaches. To understand more about your responsibilities read my article - New Landlord what are your responsibilities regarding safety regulations
