Buying a property to rent it out has become very popular in the last few years. Mortgage providers are now offering buy to let houses for the first time, so it’s easier to get these types of mortgages now than it’s ever been. It sounds tempting, buying a house and having somebody else pay for it all, but do you really understand the way it all works?
How Do Buy To Let Properties Work?
Basically, you buy a house or a flat as you normally would by putting down a 15-20% deposit, and get a mortgage to pay for the difference. Then the rent you get from your chosen tenant should mostly cover the interest payments, letting fees, insurance, and any other outgoings. You may then be able enjoy the capital gain as the house price may increase over a long-term period.
So, What Could Possibly Go Wrong?
There can be a number of downsides to buy to let properties, unfortunately. If house prices fall, or rent doesn’t cover your mortgage repayments, then you could be in for a nasty surprise.
There may be times where you are finding it difficult to find a tenant, or when the rent is late/not paid. In some cases you might even have to come out and repair damages on the property or hire somebody to do so.
When buying a buy to let property, you also have a duty to make sure the safety of the building is up to scratch, as is the furniture, the gas, and electricity.
You may be able to reduce risks by having several properties, but this may mean you have to take on more debt for a while, plus, it could take a good few years until you’ve got a portfolio of properties.
If you decide to let out a property, you could find that it takes up a lot of your spare time. This is where letting agents can assist you – they’ll deal with tenants for you. Of course this doesn’t come free, and you’ll usually have to pay around 10-15% of the rental income.
If you’re new to the property market using letting agents can be a good place to start until you gain more knowledge.
What Sort Of Property Should I Buy To Rent?
Flats, apartments and small houses seem to be the most popular buy to let properties. Location is very important, as important as if it were your own home. Choosing a property that is close to public transport will likely be easier to sell!
To get an idea of what you should buy to let have a look in your local paper and in the windows of your local estate agents.
Generally, capital gains you make from the house are exempt from tax. Saying that, you might have to pay tax on the rent you receive after deducting interest payments, letting fees, etc.
It could be a good idea to get an accountant to help you, especially if you have more than one property.
Buying and renting out properties can offer you a fruitful return if done the right way!