A quick guide to buy to let investing

As house prices have fallen over the past years now may be the perfect time to pick up some property bargins for UK buy to let investors and landlords.

If you are considering buying a property to let for the first time or perhaps you are considering letting your home for the short to long term then we have highlighted some things to consider when becoming a first time property landlord.

Yield is everything – cash flow is KING

An important factor to consider when you are looking to buy a property to let is the yield value and what is the cash flow (gross profit) after the mortgage and expenses have been paid?

You should ask yourself after you have received the rent and paid the mortgage and expenses (this may include letting agents fees) how much do I have left over? Is this sufficient profit to make the investment worthwhile? You should also factor in costs such as repairs and maintenance into your budget and future changes in interest rates which may affect the cost of your buy to let mortgage.

If you get this wrong, your buy to let investment can quickly turn into a liablity and may end up costing you money to own each month rather than making you a profit.

Captial appreciation for now is a thing of the past

Gone of the days when you could simply buy a house and keep it for 6 – 12 months and make a £20K profit for doing nothing. As you would see on the popular ‘House Ladder’ program by Sarah Beeney just a few years back. While many believe (as I do) that house prices will rise again when mortgage availablity increases for now any serious landlord must look at achieving good rental returns and maintaining cash flow from their investment. Any capital appreciation will be a bonus to come later on when the economy gets back on it’s feet.

A few points to consider

Here are a few things to consider when looking at a potential buy to let investment.

• Calculate the % yield (return on investment) – is it acceptable to you?
• Is there sufficent cash flow (gross profit) from the property to make it worth your while and allow for unexpected maintenance work?
• Is the property a bargin? Is it below market value for a fast sale? Make low offers and lock in equity and lower the risk.
• Is the property in an area of good rental demand for the type of tenants the property with attract?
• If you plan to let the property to LHA (local housing allowance) tenants have you checked with the benefits department as to how much they pay for your type of property? If you wish to charge more you may ask your tenant to pay a ‘top up’ amount to cover the shortfall.
• Do you plan to use a letting agent? If so, have you factored in their costs into your budget?
• Have you considered void periods and how you would pay the mortgage if you were receiving no rent?

There are many things to consider and it is important that you have done your research before you commit to buying. Have a well thought out plan and strategy and stick with it.

Useful tools for investors

We have deveoped a few useful mortgage calculator tools such as our buy to let mortgage calculator – this tool also contains calculators for rental yield, rental stress and capital appreciation that you may find useful.

If you are actively looking for a buy to let investment then our mortgage advisors can advise you on the best buy to let mortgages available on the market. The service is free, impartial and without obligation.

If you’re interested in investing by alternative means, find out how other options such as forex trading can become a smart move in your financial plans.