Are you looking to invest in buy-to-let? There’s a lot to learn, and you need some solid knowledge before you make your first investment.
Here, we’ve put together five of the best buy-to-let tips for the modern property market – they all reflect how buy-to-let has changed, and help you to navigate the new realities of the private rented sector.
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Top landlord tips
1. Understand the changing market
It’s crucial to understand that the buy-to-let market is very different to what it was five or 10 years ago. There have been big changes in the private rented sector, and many of these have made life more difficult for small-scale private landlords.
When you begin your buy-to-let investment, you need to think about where both you and the market might be in five years. Read carefully around market predictions, especially in your chosen area. Some key things to consider:
- Is the tax treatment of private landlords going to become less favourable?
- What’s the outlook for interest rates?
- Are the favoured locations for rental likely to change?
2. Do the maths, then do it again
Some sums are vitally important if you’re going to make a success of your buy-to-let investment. First, you need to judge whether or not you can afford the necessary mortgage. Most lenders will insist that you can cover 125 per cent of your mortgage payments through rent, and the required deposits are going up all the time.
Remember that mortgage rates are also shifting – in recent months we’ve seen the first upward movement following years of record lows. At the same time, the base rate is on the rise.
You need to be absolutely certain that you can cover the mortgage in the event of an interest rate increase, factoring in issues like void periods.
3. Don’t bet on capital growth
Many commentators now believe that the decades-long house price boom is coming to an end. However, this doesn’t necessarily mean that buy-to-let is no longer a viable investment.
Instead, you need to approach it as a revenue generator, rather than one that will deliver a huge capital return.
Look for parts of the UK that have high rental yield, and focus your efforts here. At the same time, make sure that you are not over-leveraged, and that you would still be able to service your mortgage in the event that you don’t secure the rent you’re looking for.
4. Remember the buyer is in the driving seat
When you’re looking for property, it’s worth remembering that the sales market has slowed down markedly across the UK. Properties are on the market for ever increasing periods, and vendors are willing to take offers that wouldn’t have been considered even a year ago.
You should make sure that you use this buyer’s market to your advantage. Don’t be afraid to drive a hard bargain, especially if you’re investing in a property that requires work.
Again, make sure that you think carefully about where you’re buying – the days of massive capital may be behind us, but there are still opportunities to be had in high yield areas across the UK.
5. Start small, but with a view to expansion
In the next few years we’re likely to see a consolidation in the Private Rented Sector, with more properties owned by a smaller number of institutional investors.
However, that doesn’t mean that you can’t still build a portfolio. Start small, making sure that you have a firm foundation with a sensible first investment. Then, with a clear understanding of the market and how it is changing, you might consider slowly expanding. You can read our guide on how to build a property portfolio in 7 easy steps.
What are your top buy-to-let tips? Let us know in the comments section below.