7 tips if you want to invest in Buy to Let property

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While property prices may have stalled during the lockdown, early signs point to a recovery now restrictions have been lifted. If you’re looking for assets to invest in, a Buy to Let property can be attractive. Rental yields have climbed significantly in recent years, especially in cities and commuter towns. But it’s not a straightforward decision and there are drawbacks to keep in mind too.

If it’s an option you’re exploring, these seven tips could help you assess if it’s the right decision for you and help you get started.

1. Research the market

It’s important that you fully understand your investment and how you can expect it to perform.

When it comes to a ‘good’ investment, there’s no single rule that applies to every area. A home that appeals to a young professional will be very different from the one that attracts a growing family. You need to research the type of home that’s in demand where you’re planning to buy, what potential tenants expect and rental values of properties nearby.

As a Buy to Let investor, the good news is you’re in a good position to haggle. You benefit from the same advantage as a first-time buyer in that you’re not part of a chain. As a result, sellers may be willing to accept lower offers for less chance of the sale falling through.

2. Understand the responsibility of landlords

Becoming a landlord can often be seen as an ‘easy’ way to make some extra money. However, it comes with a lot of responsibilities too.

You have to ensure the property remains in good condition and meets stringent regulations. This can cost both time and money. For instance, gas and electric appliances will need to be tested regularly, fire safety should be considered and any repairs that need completing should be done so in a timely fashion. Failing to comply with regulations could result in hefty fines or legal action.

Rules and regulations change regularly. So, it’s important you stay in the loop.

3. Carefully calculate ongoing expenses

A Buy to Let investment isn’t one that you can manage passively. You will need to be involved in managing a property and it’s important to be aware of the ongoing expenses associated with this. These include repair and maintenance work and landlord insurance.

If you decide you’d like to take a more hands-off approach, a letting agent is an option. However, this too will come at a cost. A letting agent will typically take a portion of the monthly rent as a property management fee. You can often negotiate this or shop around for a better deal. However, keep in mind, that a good letting agent can reduce the chance of void periods and save you money in the long run.

4. Prepare for rental voids

There will be times when the property is vacant or rent isn’t being paid, costing you money. Recognising and preparing for this can help you maximise your investment.

The first step is to fully vet tenants. This can help you minimise the risk of selecting tenants that won’t pay on time. Once you’ve got tenants in the property, treating them well and responding to concerns promptly can improve the chances of them staying long term. It means you reduce admin costs and the periods of rental voids.

In some cases, a letting agent may be a good option for tackling this. They’ll vet potential tenants on your behalf and handle initial enquiries. This, of course, comes at a cost, but if you don’t want to be a hands-on landlord, it’s a useful option.

5. Take advantage of the Stamp Duty holiday

As part of the 2020 Summer Statement, Chancellor Rishi Sunak announced a temporary reduction in Stamp Duty rates. This will apply to all residential properties purchased from 8 July 2020 until 31 March 2021, including Buy to Let investments. If you’re thinking about purchasing a house to let out, taking advantage of this could save you thousands of pounds.

The threshold at which Stamp Duty is payable on residential properties is temporarily increased from £125,000 to £500,000. Property investors will still need to pay a 3% Stamp Duty surcharge but assuming the property’s value is below £500,000, no further duty will be due.

6. Have a long-term plan

As with any investment, you should purchase a Buy to Let property with a long-term plan in mind. Current worries about the economy following the Covid-19 pandemic has led to speculation that the housing market will ‘crash’.

While this can be frustrating in the short term, prices have historically increased in the medium and long term. Take the 2008 recession, for example. House prices fell by around 20% over 16 months. However, in most areas, these have gone on to recover and deliver long-term gains. A long-term view means short-term dips aren’t so devastating.

7. Prepare for rising interest rates

At the moment, interest rates are at historic lows, good news for anyone paying a mortgage. Given the current economic situation, steep rises in interest rates aren’t expected. However, as Buy to Let mortgages generally have higher interest rates, a rise could have an impact on profitability.

When assessing Buy to Let as an investment, keep in mind that interest rates could rise. Understanding what this would mean for your income can help you create an appropriate buffer if needed. Much like traditional mortgages, you can fix your mortgage interest rate so this outgoing will remain the same.

If you’re considering investing in a Buy to Let property, please contact us. We’re here to help guide you throughout the process.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Buy to Let mortgages are not regulated by the Financial Conduct Authority.