17th Mar, 2016
A 3% tax levy due to be added in April this year has led to a rise in investors acquiring a second home as a buy-to-let property. According to a new study from Your Move, this surge has had a significant impact on the market, with the rate of house price growth having doubled since February.
Buy-to-let can be a lucrative business opportunity. Landlords make money from property in two ways: the yield, the profit after outgoings are deducted from the rent, and capital growth, the increase in the value of the property.
Where the yield is substantial, the owner can look at purchasing further houses to let, building a portfolio with the potential to create a sustainable income that requires minimal input.
If you are looking to purchase a buy-to-let property it’s well worth doing your research. An essential factor to bear in mind is the kind of tenants you’re hoping to attract. In a university town like Huddersfield, with a student population of 24,000, you could consider providing affordable student housing within commutable distance of the town centre. Think about how ‘hands on’ you would like to be as a landlord- do you want to advertise the property yourself, find your own tenants and have direct involvement with them or would you prefer a simpler approach: to employ an agent who liaises with the tenants on your behalf?
For a buy-to-let property you’ll need to investigate the specific, relevant mortgages available. As well as looking at your own credit history and the property's value, the lender will also estimate the expected rental income from the property. They will usually predict that the rent will be a minimum of 20% more than the interest payable on the mortgage (known as ‘the rent to interest ratio’).
Most buy-to-let lenders will only lend up to 80% of the property's value as a mortgage (the ‘loan to value’ ratio) so you will have to contribute the other 20%. It pays to shop around a bit for the best deal because these percentages do vary between lenders, as do the types of property they will lend against.
It is worthwhile looking at properties that need improvement as a way of boosting the value of your investment. If you can add some value to a home straight away by sprucing it up then it gives you a greater margin of safety on your investment.
Article source: www.rman.co.uk, www.rightmove.co.uk, www.thisismoney.co.uk, www.rightmove.co.uk
Image source: www.pixabay.com
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