Buy to Let Investments: For Experienced & New Buy to Let Landlords

buy to let property

Thinking of investing in property - here's some important buy to let advice and investment information that will help you succeed.

Despite changes to stamp duty and tax relief laws that have made buy-to-let less profitable than before, low-interest rates and a volatile stock market mean that buy-to-let property for sale is still an attractive and viable option for getting high returns on an investment.

So if you are looking to get into buy-to-let investing or are a buy-to-let investor who wants to improve your current income and portfolio make sure you don’t commit one of the seven deadly mistakes of buy-to-let!

Buy To Let Investment Advice

1. Do your research

do your research before investing in buy to let property

This may seem an obvious first step but far too many people rush headlong into action after making only a cursory review of the landscape.

As a potential new buy-to-let investor you need to get up-to-date on the risks as well as the benefits of buy-to-let.

For example, some high-rate savings accounts would have beaten most investments a few years ago, but with record-low interest rates persisting for some time traditional accounts look less attractive, however whilst returns will be higher in property new investors must understand that these investments can tie your cash up for years, so it’s important to balance a desire for good returns with the reality of your cash flow needs.

Good returns can be made in investments in funds, shares or trusts via an ISA which will see you avoid tax on income and capital growth.

However turning that around you can gain massive profits by finding a good property deal, adding value and reselling or renting at an increased rate.

So the question is: is this the right investment for you based on your circumstances and goals?

There’s no doubt that buy-to-let is riskier than a traditional savings or ISA investment, but the fact is all investments carry risk and higher possible returns do not always equate to higher risk.

So tip one is to understand the market and understand your own situation and goals before taking the plunge.

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2. Location, location, location

buy to let location is important

The cliché of property investment is that it is all about location. Clichés are clichés because they are true – so choose your location very carefully.

Recent studies have identified Romford as one of the best locations to get a great yield on your buy-to-let – it was until recently the UK’s number one location for buy-to-let yields - – so what is it about Romford that makes it so great for buy-to-let landlords and what can we learn from those features to help us choose a location?

One thing to note is that the areas with the best yields will almost certainly be the some of the most expensive places to invest in so it is important to be realistic in terms of your investment budget and returns you can get.

Romford is the most east-ward London borough, on the border of Essex, it has a vibrant business and shopping district with multiple arcades, a traditional market and fantastic transport links.

It is a place people want to live because London is easily accessible by road and rail, as is the Essex countryside and coast, not to mention a multiplicity of airports within a couple of hours or less.

The London Borough of Havering, in which Romford is situated, also contains plenty of good schools, both primary and secondary, as well as nursery schools and plenty of facilities like parks and sports centres, cinemas and entertainment venues for both children and adults.

So, the key is to invest in property in an area where people want to live – getting a great deal on a property in the middle of nowhere is not a great buy-to-let investment as you will be severely restricted as to who would want to rent it.

A good tip is to invest in property in locations that are close to you as you will have a better understanding of the area and the pros and cons of living there to help you make a good decision.

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3. Understand your numbers

know your numbers when investing in buy-to-let

Be clear that this is an investment, a business even, so you must do your due diligence accounting and be sure that the purchase price and rental rate numbers add up.

First be aware that a buy-to-let mortgage is very different to a regular residential mortgage.

A buy-to-let mortgage lender will generally require that the rental income covers 125% of the mortgage payments, plus it is not unlikely that they will also require a 25% deposit.

You can also expect to pay a larger arrangement fee for the best buy-to-let rate mortgages.

On top of that there will be ongoing maintenance fees to consider as well as insurance premiums and possibly management fees if you decide to outsource tenancy management.

So be sure to take account of all the expenses and cross-reference this with the estimated rental income to get a good estimate of what your profit (rental yield) is likely to be.

Rental yield is a percentage that measures rental income as a proportion of the property value and as well as giving you a profit estimate it is also used by financial institutions as a key factor in buy-to-let mortgages.

If your rental yield calculates at 5% or less then you need to seriously consider whether it will make for a good investment – at that rate it is likely that you will be relying on capital appreciation to make a return, which is a big risk in the current climate, so invest for rental income and not capital growth.

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4. Don’t get a buy to let mortgage from your current bank

buy to let mortgage

It is almost certain that you will not get the best deal on a buy-to-let mortgage from your current bank.

‘This Is Money’ identifies the following lenders as consistently the best lenders to obtain a buy-to-let mortgage from;

  • Skipton BS
  • BM Solutions
  • NatWest
  • Woolwich
  • Coventry BS
  • Platform (part of Co-op Bank)
  • Accord (part of Yorkshire BS)

A number of those lenders are not nationally-known high street banks or building societies and it is a mistake not to speak to an independent broker when looking for a buy-to-let mortgage.

As well as having all the information on the latest deals available they will also be able to discuss which is the best mortgage for your circumstances and goals and whether to fix or track.

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5. Don’t pay the full asking price

One of the biggest frustrations in buying property can be ‘the chain’ – it takes just one weak link to scupper a whole series of property deals, so just like a first-time buyer, as a buy-to-let investor you have the distinct advantage of having no chain behind you and are in a strong position to strike a deal as there is no chance of the sale collapsing as a result of outside circumstances.

If you avoided mistake number one and did your research on the housing market in your area then you may have some inside knowledge that you can leverage. For example, if there is a bit of a slow-down in the property market in that area and properties are taking longer to sell then you have leverage, especially if you profile the seller and work out what is most important to them – speed or price – you can negotiate from a position of strength.

6. Understand the long-term financial risks

know the long-term financials for buy-to-let

Knowing your numbers on the front end is a vital first step but don’t forget that you will also need to ongoing management and an exit strategy.

If you manage the property yourself then you will be spending time rather than money on an ongoing basis dealing with tenants, contracts, repairs and maintenance, etc.

Also be aware that there will no longer be tax relief on rental income

You also need to factor in troubles with tenants – that could be non-paying or simply going for a period of time without a tenant at all!

Many buy-to-let landlords factor in only 10 months or rent per year to buffer themselves against such issues. Taking out insurance is another option.

When it comes to the time to sell your investment it’s important to know that you will pay capital gains tax of either 10% or 18% depending on income.

Exiting a buy-to-let investment has historically been very profitable due to capital appreciation, but new buy-to-let investors cannot rely on this as in the past, certainly not at those previously high rates.

Whilst these factors have certainly made buy-to-let less profitable than before it can still represent a very good investment, particularly as the buy-to-let space is a little less crowded now due to these changes.

Financing Your Buy to Let Investment


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7. Understand the difference between off-plan and turn-key buy-to-let

off plan buy to let investment

As a buy-to-let investor you will have two types of property to choose between – turnkey and off-plan – and understanding the difference between these is vital in choosing the best investment for you.

Turnkey is the traditional way of buying a property – from an owner-occupier, or even another buy-to-let landlord.

Off-plan is buying a plot on a development on which the property will be built from the development company.

Off-plan buy-to-lets are often managed by the developer with guaranteed yields for up to 5 years and so it is important to do your due diligence on the developer – make sure they have a track record of delivering on their deals.

Also if the yield is guaranteed for 5 years – what happens after? You must be sure that you won’t left with a white elephant of a property in a location that has not been fully developed and is not an attractive place to live.

Buy to let investment advice for landLords - summary

Buy-to-let can be a fantastic investment that delivers great returns – but only if you do your research and understand the market and your own circumstances. By following the seven principles outlined in this article as a new buy-to-let investor you will be starting out the right way and giving yourself the best chance of success

At Sterling Woodrow we pride ourselves on helping new buy-to-let investors get a solid start in the market and are happy to speak to you about your long-term goals and ambitions in property investment.

To claim your complimentary property investment consultation with one of our senior property investment managers simply click the button below and complete the short form below and we will call you back at the appropriate time.

Buy to Let Rental Yield - Location Location
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