Buy-to-let tips: The 8 things that can kill your buy-to-let investment
Investing in buy-to-let property appears on the surface as a 'sure fire' bet. Property prices are always going up, plenty of people wanting rental properties and you can leverage your investment by using a buy-to-let mortgage. However, reality can be quite different from the rosy picture painted by your mate down the pub and parts of the media.
Here I take you through the 8 things that can kill your buy-to-let investment and provide tips on how to avoid them.
House prices crash
Now you may think that house prices are always going up but that is not always the case. Since the recession started in 2008 house prices fell pretty much everywhere and whilst in most cases prices have returned to their pre-crunch levels there are areas of the UK where prices are still struggling to catch up.
Falling house prices are a problem for anybody looking to realise their buy-to-let investment in the short term or looking to remortgage a property to raise capital for further investment.
A buy-to-let investment should be a long term investment where a short term dip in house prices will not be so devastating.
Rising interest rates
If you are relying on a mortgage to help finance your buy-to-let investment then a rise in interest rates can seriously affect your finances. At the present time interest rates are artificially low due to government intervention, over the long term mortgage rates have averaged around 5%, way above the current average of 2.5%. With buy-to-let mortgage rates typically higher than ordinary residential mortgage rates any increase can put a severe strain on your finances.
Try to limit the amount of mortgage you need and fix your mortgage so that you know your outgoings in advance.
Any returns on a buy-to-let investment can be seriously impacted by the running expenses of your investment. Costs such as insurance, letting agent fees, repairs and refurbishments can slowly drain away any profit if not carefully managed.
Before you start investing in buy-to-let property make sure you budget for all the outgoings so that you can clearly understand the full costs involved.
At the moment there is a good demand for rental properties but you will have to be very fortunate not to experience void periods. These periods when you have no rent paying tenants can stretch on for weeks, or longer, especially if you have repairs to carry out before the property is fit for rent.
Make sure you check out any prospective tenant fully and treat them well once they move in to maximise the chances of them staying long term.
Not complying with landlord legislation
There are some regulations that all landlords have to comply with when they let a property to tenants. Failure to comply with these regulation could result in a hefty fine or in severe cases imprisonment which will have a massive impact on your buy to let investment.
Unfortunately not every tenant will treat your property the way you would like. There are some real horror stories about tenant behaviour from mindless damage to cannabis farms resulting in hefty repair bills for the landlord.
Vetting all tenants carefully will not necessarily solve the problem completely but it will certainly reduce the risk.
Non paying tenants
If you have a tenant that is not paying their rent then you can have them evicted. To protect all parties there is a legal process to follow which can a number of weeks. During this processing time the tenant will be allowed to stay in the property - probably causing damage and still not paying the rent.
Take out rent guarantee insurance that will pay out if your tenant doesn't pay up
Unfortunately some areas, where there is a high number of low rent properties, can attract the wrong type of tenant. These areas can quickly become blighted with a 'ghetto' type environment making the properties harder to let and almost impossible to sell. Stories are rife where investors have bought in a respectable area only to see their investment fall in value as the area slowly declines.
Think carefully about the areas in which you are going to invest. Just because the property is cheap doesn't mean you should buy, think about the long term.
- 27 point checklist of a successful buy to let landlord
- Is buy to let the best investment for you?
- The Buy to Let Guide
(image by Jeroen van Oostrom, freedigitalphotos.net)
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