Buy-to-let is the term used for properties that are purchased specifically to let (rent) out. Landlords have seen the benefits of investing in a property with multiple tenants for a fixed period of time and since new laws have been passed, buy-to-lets have been a solid method of rental income.
Buy-to-let properties have long been a popular choice for many people looking for a home, but not committed to purchasing a house. The demand for residential properties to rent has grown since the 90’s and it is continuing to be a popular choice for investors in the UK and all across the world.
For investors, residential buy-to-let investments are a strong and stable property investment strategy. The main appeal of residential buy-to-let property investments is the stable income from tenant rent along with the growth of capital if house prices go up over the years. The rising house prices in the UK is a big advantage for investors purchasing properties in the country.
Can First Time Buyers Make Returns On Residential Buy-To-Lets?
Yes! First time buyers are able to make substantial returns on a buy-to-let investment. With the current property market you may be wondering is buy-to-let still a good investment? The answer is yes, as long as it has been thoroughly researched.
If you are new in property investment, you may feel overwhelmed and unsure making you hesitant with purchasing a property but everyone has to start somewhere. With the right guidance and information, you can work through the process to make sure the rewards outweigh the risks.
One of the potential hurdles when it comes to first time investors is that you may be limited with buy-to-let mortgage options. For buy-to-let properties, there is a specific mortgage you need to obtain that is slightly different to a regular house mortgage.
If you are a first time buy-to-let landlord, a lot of mortgage lenders need you to own your own residential property for at least six months before they can offer you a buy-to-let mortgage. Other lenders will only require you to own a property, but you don’t necessarily need to own a house.
For complete first time buyers, the mortgage options are a bit more limited. You will need to speak to a mortgage adviser to find out which buy-to-let mortgage you are suited to.
Buy-To-Let Mortgages For Property Investors
Similar to regular mortgages, there is a deposit and a payment to be made in order to gradually pay off the property. The main differences in regular and buy-to-let mortgages is that buy-to-let mortgages are interest only. This means that there are no monthly payments, instead the capital is repaid in full at the end of the mortgage term.
The interest rates for buy-to-let mortgages are also usually higher and the deposit is also higher at around 25% of the property’s value.
Mortgages can be a great tool for leverage allowing investors to borrow capital to first purchase the property, then get an income from renting it out to pay off the mortgage as well as make a profit from the ongoing property investment.
The amount you are a-buyllowed to borrow will depend on the amount of rental income you are expecting to get. Lenders will only go through with the mortgage if they believe you are able to pay the money back.
Finding The Ideal Location For A Buy-To-Let
The location of your buy-to-let is extremely important because you need to put yourself in the tenant’s shoes. Don’t just invest in a property that looks attractive or has the cheapest buying price. You need to consider which area has the right demographic with a consistent demand to support your investment. For residential buy-to-lets, there needs to be a substantial amount of the population demanding homes to rent and ideally a supply that is not enough to cover the demand. This will make the buy-to-let more valuable, increasing rent prices for the tenant but giving the investor a higher net return annually.
How Will You Manage The Buy-To-Let Property?
Depending on your own needs, you may choose to:
- Manage the property yourself if you have the experience, skills and want to be in control and save your money
- Use a property management company for a hands-free investment if you are busy or far from the property location
Many developers will offer a built-in property management service from a trusted company of their choice. It gives the investor flexibility so they don’t have to deal with sourcing tenants, keeping up with rent, dealing with troublesome tenants, and making repairs and maintenance. It is important to remember that as a landlord, it is your legal responsibility to maintain the property, so you can either do it yourself or hire a management company.
Selling the Buy-To-Let
After getting a rental income for 3-5 years, you may decide it is the perfect time in the market to sell the property for a higher price than you bought it, giving you a massive profit. The exit strategy for buy-to-lets is fairly easy because they are well sought after. Many investors will rely on capital appreciation to make the most out of their investment and flipping the property is the end goal.
You don’t have to sell the property after a few years, if it is still giving you a stable rental income or if the market is not at the right point to make substantial capital gains from selling, you can always keep it and build a property portfolio. A portfolio manager from a property investment company can help you with the whole buy-to-let investment process.
How To Get The Best Buy-To-Let Investment Deal
For first time buyers you may not know where to look or who to call. The best option is to go through a property investment company to find your first buy-to-let investment deal. A property investment expert will be able to find you the best deals on buy-to-let investments with high net returns at a discounted price. A lot of the additional responsibilities will be covered such as property management and running fees in one bundle, giving you a great deal at a discounted price whilst not compromising the returns.
The rental yield will vary amongst locations with Manchester currently experiencing an average rental yield of 6% and West London going through a period of lower yields at 2.94%. Investors are adjusting to the current property market and venturing out into different areas in the UK such as Luton, Sheffield, Liverpool and Glasgow. Rental yields for areas can be as high as 8%, so finding a promising location can be the key to high returns.