How to Succeed with Property Investment

Property is often seen the best investment in the country. With literally millions of success stories, TV programs dedicated to the subject, and a property market that looks (to the casual observer, at least) to be in constant growth, surely bricks and mortar is where it’s at?

In fairness; all of that can be true, but thinking that becoming a landlord through buy-to-let is going to be an effortless investment leading to untold riches is a sure-fire way to failure.

Navigating a buy-to-let mortgage and then managing the difficulties of being a landlord in order to make money takes planning and effort – and no small amount of experience. Thankfully, we have the latter and are here to help you.

Here are eight tips to help you understand the pros and cons of a buy-to-let mortgage as investment.

1 - Understand the costs

Your interest-only mortgage is not the only cost of managing a rental property. Maintaining the house, paying agency fees significant parts to your investment and must be taken into consideration before calculating the real profitability of the house. Simply believing that a £400 a month mortgage requires little more than £500 per month in rent to cover it and leave you with enough spare is going to lead you into trouble.

Look at the following list of additional costs:

  • Property repairs
  • Refurbishment and decoration
  • Exterior maintenance, gardening and windows
  • Internal cleaning costs between tenants
  • Letting agent management fees
  • Letting agent finder fees
  • Other advertising fees to let property
  • Landlords insurance
  • Buildings insurance

You might be able to mitigate some of these expenses through doing work yourself, but then consider how much your time is valued.

For a good look at how much your mortgage is going to cost each month, why not use our buy-to-let mortgage calculator?

2 - Calculate the tax

There’s always someone wanting a piece of your pie! HMRC will be looking to take their cut, so make sure you have calculated the tax impact of being a landlord.

Stamp duty land tax
Buying a property will incur a substantial stamp duty cost that will run into thousands of pounds. It’s a one-off fee that means it is considered somewhat differently than ongoing costs by many, but it is still a significant impact on your investment.

Income tax and mortgage interest tax relief
Changes to mortgage interest tax relief that happened in 2017 means that the income tax due on rented out properties is considerably higher than it used to be, and will make a difference on your overall profit.

However, by incorporating your landlord business you can save significantly on these tax concerns. Read our guide on mortgage interest tax relief to find out more on both the changes and the ways you can make a saving.

3 – Consider the need for tenants for every month

When your property is ticking along nicely, with respectful tenants who pay on time each month, it represents the very best in investment opportunities, but you can’t be sure it is going to remain that way for the whole time. Dry months when you are between tenants (or even worse, problem tenants that don’t pay and become a burden) are very likely and all those outgoings still keep rolling around even with nothing coming in to cover them.

Plan for periods without tenants and be prepared to adjust agency fees and advertising to minimise the time your property spends unoccupied.

4 – Find the right location

Many buy-to-let landlords simply opt to get a second property in the same town they are living in, believing that being on-hand will make the task of managing the property a lot easier. While this may be the case if you plan to do without a management agency altogether, for many the truth is that proximity to the investment property isn’t relevant and you can potentially get a far better yield by looking at the UK as a whole and choosing to become a landlord in a more lucrative location.

Examples of superior locations are those where the student population is high, inner city locations where demand is strong or properties on growing commuter routes to major cities.

5 – Plan on renovation

Profit on a buy-to-let property comes in two places; the monthly income from rental, and the overall growth of the property value. By purchasing a property that will benefit substantially from renovation, you focus heavily on the latter and can be a little more flexible with the former.

Renovating is an investment in itself. If you have a lot to do you may need to make sure your mortgage covers the costs – speak to us at The Mortgage Hut about getting a mortgage with renovation in mind.

 If you do your additional developments well you could put a large amount of additional equity into the property, not only making it worth more for a final sale, but increasing the desirability in the meantime and improving your rental options.

6 – Haggle

When you are buying a property for your home, you are looking for somewhere you can love. This emotional attachment to a house means that you are typically willing to push your budget a little harder to secure it.

Buying as a buy-to-let investment is different. You shouldn’t be looking at the property in terms of how much you love it, but by how much potential there is in it to make money. If the house doesn’t work in that way, then you are really not interested and can move on until you find another place for which the maths do add up correctly.

This means you can be harder about your offer – remember, as you don’t form part of a chain, you are in a good negotiating position.

Also do what you can to find out why the seller is looking to move the house – if it has been on the market a while then they may be more than happy to accept a lower price if they know the sale will go through quickly.

If it falls through, then that’s fine, look at the next available property; but if it does pay off then you’ve made a substantial saving.

7 – Look to auctions

With a mortgage in principle, you will have the purchasing power to go to auctions and make safe snap decisions. The savings that can be gained by buying property at auction rather than through a traditional agent process are often considerable.

Just don’t get too far into the auction spirit and make poor bids. Know your top-end going in and don’t cross it, no matter how tempted you are.

8 – Speak to The Mortgage Hut

Getting advice from a specialist who has your best interest at heart, and knows the range of products available is going to save you in time and money! At The Mortgage Hut we work with a huge spread of lenders to find you the most suitable mortgage, with low rates and excellent terms.

For an idea on how much mortgage you can afford, use our buy-to-let mortgage calculator.

Give us a call today to see how we can help you on your path to becoming a landlord, or fill in our contact form to have someone get back to you at a convenient time.

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