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Property
Buy to let property checklist
Buying an investment property is very different to buying a home for yourself. There are several things to consider before becoming a successful landlord. In this entry I will aim to cover the most important things to look at and consider when buying a buy to let property and getting a buy to let mortgage.
Research the market.
Buying a buy to let property is not something to rush into. Even know you borrow a substantial part of the purchase price of the buy to let property it is likely to cost you a considerable amount to set yourself up as a landlord. Speak to letting agents in the area where you want to buy to find out if there is a demand for rental properties in there area and how much income you can expect. The estate agent should be able to tell you about the most popular properties and areas for tenants.
Do your sums
Once you have an idea of what kind of rent you can achieve you can work out how much you can afford to spend. Most mortgage lenders will ask that the rental income is at least 130% of your monthly mortgage repayments. This means you can borrow around 77% of the expected income. Once you have an idea of this from the agent you can work out how much you want to borrow for your buy to let property.
Investigate buy to let Mortgages
When you have and idea of how much you can afford to repay each month on your mortgage for your buy to let property you can start looking at mortgages. Many lenders will offer mortgages of up to 75% loan to value (LTV) for buy-to-let purchases, but it is possible to borrow as much as 85% LTV. There are lots of special offers around at the moment so you can take advantage of a fixed rate or discount in the early years. Bear in mind that the rental income may not rise quickly from year to year, so if you choose a discount you need to be sure you can still make the repayments after the special offer has ended, or fixed rates increase.
Find the right property
With a good idea of how much you can spend and the types of property that are popular with tenants you can start looking for somewhere to buy. Remember you are not buying a house to live in yourself so it doesn’t matter if the property isn’t the type of place you would choose to live in. it is purely for investment and you must think with your mind not your heart, remove all emotion from this particular purchase. It is a good idea to look for a buy-to-let property that is easy and cheap to maintain.
Apply for a mortgage / buy-to-let mortgage
Having found the property you want to buy you need to apply for a mortgage. The process will be much the same as when you ally for a standard mortgage, but on top of the usual paperwork you must be asked to provide a letter from a letting agent detailing the kind of rental income you can expect. You may also need to agree to use an agent to manage your property.
Recruit a letting agent for your buy to let property
Some but-to-let mortgage lenders insist that you use and agent to manage your property. For a fee of up to 15% of your gross income you can employ and agent to find tenants, check their references. The agent should also be able to help you draw up an appropriate tenancy agreement and will help you compile an inventory before you let the property.
Buy the right insurance / buildings insurance
As a landlord you will need buildings insurance to cover the structure of the property. Make sure the insurance covers buy-to-let properties. If you are providing furniture or white goods you may want to buy some contents cover for your buy to let property. Legal expenses cover is another one to consider, it will cover your costs should you need to take a tenant to court.
Sort out your tax position
Rental income is taxable; it will be added to your other earnings to calculate your income tax. But there are a number of expenses that can be offset against the rent you receive to reduce your tax bill, including letting agency fees, buy to let mortgage interest costs and where the property is furnished, a 10% allowance for wear and tear.
