If you are contemplating investing in a buy-to-let property, there are some key areas you need to address to increase your chances of a successful outcome for your investment.
Decide your strategy
If you are considering investing in your first buy-to-let property then you will need to decide your investment goals and the strategy you are going to adopt. A business plan needs to be created, well ahead of your initial investment, covering the following areas:
- 1 - How much money are you going to invest, and will you purchase the property with cash or will you require a mortgage?
- 2 - What is the purpose of the investment, do you want to create a monthly income, capital appreciation, or both?
- 3 - How many properties do you want in your portfolio, are you looking to build a portfolio of properties or just stick with one?
- 4 - What type of property are you going to choose for your investment (houses, apartments, student lets, or even commercial properties)?
- 5 - How long do you intend to keep your buy-to-let properties as an investment?
Do your research
- 6 - The motto 'never invest in something you don't understand' is never truer than with buy-to-let. Research, research, and then do more research.
- 7 - Understand the properties and the locations that will give you the best yields on your investment.
- 8 - Understand that a buy-to-let property is an illiquid investment and the problems that may occur if you need to realise your investment quickly.
- 9 - If you know somebody who has invested in buy-to-let properties then talk to them about their experiences good and bad.
Choosing the right property
- 10 - Do want a property ready to let or are you prepared to do some work in bringing a property up to rental standard?
- 11 - Do you want to invest close to your home or are you prepared to look elsewhere for the best potential yield?
- 12 - Talk to estate agents about the best properties to buy form their point of view and local knowledge.
- 13 - Always buy a property on the basis of rental yield not on the basis of whether you would live in it yourself.
Investment management
- 14 - Will you manage the property yourself or are you going to use the services of a letting agent?
- 15 - If you use a letting agent, will they manage everything or just the job of finding a tenant and do you know the costs involved?
- 16 - If you are managing the property yourself, do you have a maintenance person or company who can deal with any emergency call-outs?
Do your sums
- 17 - Understand the income tax implications on rental income.
- 18 - Understand the Capital Gains Tax implications when selling a property that is not your primary residence
- 19 - Understand the full cost of buying such as stamp duty, solicitor fees, and any mortgage fees prior to making your first purchase.
- 20 - Understand the ongoing costs such as mortgage payments, insurance costs, maintenance costs, letting agent fees and potential void periods.
Understand the legal issues
- 21 - There are legal responsibilities that a landlord must adhere to with serious consequences if ignored.
- 22 - Any income or profits from buy-to-let are taxable, so read this article for more - "Guide to income tax from a rental property".
Shop around for the best mortgage
- 23 - If you are requiring a mortgage to purchase your buy-to-let property, shop around to get the best deal.
- 24 - You could source the best deal yourself or employ the services and knowledge of a professional mortgage adviser* or use an online mortgage specialist such as Habito*.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses - Habito
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