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Buy To Let Property
Buy to let Property - Getting Started in Buy to Let Property
Buy to let Property Clients - What is your target market and clients
Buy to let Property Competition - Who will you be competing against
Buy to let Property Market -The main issues that affect the market
Buy to let property business promotion - Promoting your buy to let business.
Buy to let costs - Costs involved in a buy to let business.
Buy to property law - Legal considerations for buy to let property.
Buy to Let Property
If you are looking to get started in the Buy to let property market, it is advisable to conduct a careful thought out market research before you decide to buy a property to rent out and take on a prudent approach to the amount you will want to spend for your property purchase.
Generally speaking, investing in property is usually a good investment, but there have been periods when buy to let landlords have struggled to make a their profit due to changes to legislation or interest rates or the unexpected decline of the area where they bought.
If you choose to appoint an estate agent to manage your property letting, then be sure to select an agent one who is a member of a professional association, such as the ARLA, the National Approved Letting Scheme (NALS) or the UK Association of Letting Agents (UKALA) Further tips on appointing a property estate agent, including the legal relationship, rights and responsibilities, can be found on many websites on the Internet. Do your research to ensure that you find an agent with whom you can build a long term relationship to help you let your properties quickly and efficiently.
A lot of landlords choose to manage their buy to let property investment themselves and are happy to take on the responsibility of finding tenants, checking their references, organising rent payments, carrying out inspections, maintaining the property and insuring against damage. If you are planning to manage your own property then have a think about becoming a member of professional associations such as the National Landlords Association (NLA) or the Residential Landlords Association (RLA), which can provide legal advice, help lines and standard documentation such as tenancy agreements and tenants' notices to quit.
Financing for buy to let properties can be obtained from many lenders who provide specialist buy-to-let mortgages, as well as mortgage brokers who seek out the best deal for buyers. Most lenders expect you to charge rent to cover 125% of the mortgage repayments, and will require a 15% deposit to protect against falling prices. Although mortgages of 85% loan to value are the norm, some lenders sometimes offer 90% loan to value deals. Some lenders are less stringent about these conditions when interest rates are higher.
When you are managing properties, you will sometimes get into situations where there will be differences of opinion from time to time between you and your tenants. You should have good negotiation skills and a responsive attitude to reasonable requests. It is also advisable to distance yourself emotionally from the properties you buy.
The Council of Mortgage Lenders (CML) produces two guides for people considering buy-to-let, which aim to summarise the practical considerations involved which can be found from the Internet. They can be downloaded at cml.org.uk/cml/consumers/guides/buytolet
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Buy to let Property Clients
When you get involved in the buy to let property investment market, you will find that your clients will come from a broad range of backgrounds. There are a variety of reasons why people will want to use privately rented accommodation. In some cases, people are sometimes are forced to rent due to economic and social circumstances, while for others renting is increasingly seen as a preferred option. Your specific target market will include any of the following groups:
· People whose main family home is based in the countryside but who need to rent a 'crash pad' near their place of work.
· Young professionals who have recently graduated and who prefer the career flexibility that renting gives them.
· Executives who have relocated to a new town and who are prepared to pay the rent on an upmarket home for a transitional period.
· Retirees who spend part of the year abroad and want a UK base for a few months.
The more traditional tenant groups include:
· Students. There is insufficient university accommodation to house the huge expansion in student numbers that has taken place since 1997. However, this market is vulnerable to changes in Government policy and increases in tuition fees may affect student numbers.
· People who are divorcing or coming out of a relationship.
· Young people leaving home who see renting as a first step to buying a home.
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Buy to let Property Competition
The main competition that you will face in the buy to let market will be other buy to let landlords and letting estate agents. It is always worth having a look at estate agents' windows and property websites regularly to assess the current rent levels and the types of property available.
There are many websites that have useful directories of property-related services, including estate agents and letting agents,. You can do a quick search on the major search engines to obtain further information.
Housing associations are beginning to offer more and more shared ownership schemes, where the tenants can purchase part of a property where they live. This is one area that is worth researching and checking whether such schemes operate in the areas where you plan to develop property.
The lenders are normally happy to attract first-time buyers with tempting mortgage deals. A good landlord will attempt to ensure that a tenant’s rent is lower than the cost of monthly mortgage repayments on similar properties to maintain occupancy.
You can use business directories such as Yellow Pages and Thomson to research letting agents and other potential competitors in your local area.
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Buy to let Property Market
It has been estimated that by the year 2016 the buy to let property market is expected grow by 41%. This figure is based on a research conducted by the lender Alliance and Leicester. The research also picks up on the point of a rise in demand for rented property by students and single people.
The research report that was issued states that areas such as London and the south east form Britain's buy to let property 'hub'. In the report, more than two thirds of the landlords that were questioned wee employed with a full-time job, in addition to owing a property to rent.
The lending interests rates influence significantly impact the buy to let property market. A high enough interest rates can make the buy to let property market an unviable proposition for some investors. The interest rates that are set by the Bank of England but are still influenced by changes in Government policy and a number of factors including inflation, public spending, the strength of the economy, the outlook of the economy and so many other factors. . It is virtually impossible to forecast interest rate levels over the life of your mortgage. It is, however, a good idea to have good leeway in your profit margins to account for any interest rate rise of several percentage points. Another option to consider is to have your interest rates fixed over a number of years to ensure that you can plan around your mortgage effectively.
The sustained growth in house prices has continued unabated for more than a decade and despite warnings of a slowdown, this has yet to materialise. Although things are beginning to cool down, you it is wise to keep a close eye on the house prices by using various resources available on the Internet.
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Buy to let business promotion
There are many ways to promote your buy to let property, ranging from internet advertising, estate agents to word of mouth. Listed below just some of the basic marketing activities that you can undertake to get you off the ground:
One of the most popular to find property for rent these days is to search online for properties to rent. You should embark on a advertising your property on a popular website with good colour photographs and details of the specifications to achieve good results.
The traditional placement of advertisements in local newspapers, property magazines and newsagents' windows to reach local people who may be interested in renting is still a good way to advertise.
On the Internet, you should list your website on a specialist property directory, in addition. Some of the bigger directories have many people actively looking for places to rent.
Make arrangements with a local or national estate agent. This sometimes works best as many now offer a full management service as well as arranging lettings. A directory of estate agents can be found at the National Association of Estates Agents (NAEA) website (www.naea.co.uk/agents).
If your rental market is to students, then you will actively need to place an advertisement with the accommodation office of the local university or college.
Many cater for both students and members of staff looking for properties to rent.
You can visit the website www.hero.ac.uk for university and college listings.
Buy to let property costs
When starting out a buy to let business, one of the major and the obvious cost is the property itself. In addition to the cost f the property, there are a range of other expenses included in the business. These additional costs can be the deciding factor in the financial viability of the investment.
Setting up a Buy to let mortgages is usually more expensive than the traditional residential mortgages. Whereas 100% mortgages are available for residential clients, most lenders issuing buy to let mortgages will only provide a mortgage for a maximum of 85% of the property price. There ate some lenders who will provide a 90% loan to value mortgage, but these deals are not normally widely available.
Using a mortgage broker can sometimes costs you a fee too. Some brokers charge a fee of around 0.5% for arranging the mortgage, although there are also many mortgage brokers that provide a mortgage completely since they rely on the lender commission only.
As well as lower loan to value, the interest rates for a buy to let mortgages are normally slightly higher than those on residential mortgages.
If you opt for a managed letting service through an estate agent, then you will need to budget for paying a letting agent. Most fees range between 10% and 12% of the rental income. There is also costs involved in having a tenancy agreement drawn up professionally will cost from 50 to 150.
There will also need to be consideration for buildings and contents insurance. The charge on a buy to let property is usually higher on that that of a residential property. Shop around to obtain a god quote.
A lot of tenants prefer to rent furnished properties, so you will need to allow a budget for furnishing the property. If you are letting to students then they will expect some basic furniture, but people relocating for business may not.
In addition to furniture, also allow a budget for any re-decoration work and ongoing maintenance and redecoration of the property. Knowing some DIY will always be useful.
From a legal front, you are required to hold a valid safety certificate for any gas appliances, which must be renewed annually.
Other costs will include the cists of advertising and marketing activities, fees for listings in directories, and membership subscriptions for professional associations.
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Buy to let property law
There are various legal issues involved with the buy to let business and just a broad outline of issues are discussed here. You should always seek professional advice for specific issues.
One of the major elements of the buy to let property business is the tenancy agreement. This forms the fundamentals of your relationship with your tenants. You can have one drafted to meet your specific requirements by your own solicitor or by a letting agent. There are also standard template agreements available from many websites. A quick search should help you find a supplier covering the UK.
A series of legislation has regulated the activities of private buy to let landlords. The Housing Act 2004 introduced a number of changes to private renting in England and Wales. They include the following:
· The HHSRS also known as risk assessment procedure for residential properties is known as the Housing Health and Safety Rating System (HHSRS)
· The HMO license means that if you own a house in multiple occupation (HMO), you will need a property licence.
· The Tenancy Deposit Scheme aims to safeguard deposits paid by assured shorthold tenants (the majority of private renters fall into this category) and to set up an arbitration procedure to resolve disputes relating to deposits.
· Home Information Packs were introduced from 1 August 2007. Many estate agents offer this as part of their service. In time, the packs will affect you if you subsequently decide to sell your property. See www.homeinformationpacks.gov.uk for more information.
In Northern Ireland, obligations of landlords and tenants are governed by the Private Tenancies (Northern Ireland) Order 2006 whereas in Scotland, obligations of landlords are governed by the Housing (Scotland) Act 2006
In general, there is noticeable differences between the laws of England and Wales, Scotland and Northern Ireland. It would be prudent to do your research and talk to a lawyer from the relevant country. Brief summaries of landlords' responsibilities in each of the countries are available from the Shelter website (www.shelter.org.uk). More advice is available from the:
The key legal issues to think about relate to safety, harassment and what the law describes as the tenant's right to 'quiet enjoyment' of the property.
All gas appliances, from fires to boilers, must have a valid safety certificate issued by a CORGI-registered engineer. These certificates are valid for 12 months. Similarly, electrical appliances should be checked by an NICEIC (National Inspection Council for Electrical Installation Contracting) electrician.
Another important area that needs consideration is Fire safety and attention needs to be given to flammability issues with the property furniture.
Letting your property to students can come under the HMO (house in multiple occupation) legislations, even if the bathroom and kitchen facilities are shared. Further information on these issues can be obtained from your local authority. See www.direct.gov.uk for a directory of local authorities.
A property will need to make the necessary adjustments under the Disability Discrimination Act 1995 to provide disabled tenants and leaseholders.
Any rental income that is earned from a property is subject to income tax in the same way as any other business income. Exemptions apply to rooms let in your own home. Any property that is not your own home will usually be subject to Capital Gains Tax (CGT) when they are sold and your beneficiaries could be liable for inheritance tax. Your solicitor or accountant should be able to offer advice.