Are you thinking about purchasing a buy to let property but need some help weighing up the pros and cons in order to decide whether it’s something you should pursue? There’s a lot of uncertainty in the UK at the moment with the unknown effect Brexit may or may not have on us, but one thing remains certain, people will always need somewhere to live! So with this in mind, if you are thinking about purchasing your first buy to let property or wondering whether you should add to your existing portfolio, we’ve written this guide that will hopefully answer a few of the things you may be thinking about.
What are the benefits of having a buy to let mortgage?
Let’s start with the positives! A few of the benefits of a buy to let mortgage are:
- With house prices continuing to be at an all-time high, getting on the property ladder has increasingly become more difficult over the years, so rental properties are highly sought after. There is obviously the risk that the property could be unoccupied for some time however, the long term appreciation of the property would potentially outweigh this.
- Investing in apartments is a really good way to utilise the benefits of a buy-to-let mortgage. As apartments are often cheaper than houses, it may be that you could purchase more than one or you have some of your investment pot left over for other opportunities.
- By choosing a long term reliable tenant you will have a steady stream of predictable income.
- Putting your money into property is one of the most reliable ways of investing money as it’s a tangible asset that you can control.
What are the risks of a buy to let mortgage?
As with everything, there are some potential risks attached to having a buy to let mortgage. Some of the things you need to consider are:
- The housing market has been booming in recent years, with house prices rising by 219% from 1996 to 2007 according to the Halifax, however it’s not a guarantee that house prices will continue to increase and this is something you need to be mindful of.
- Having the wrong tenants in your rental property can be disastrous and it’s worth going through a letting agent to at least find the tenants if not manage your property. If you do go through a letting agent to manage your property you will need to make sure you are mindful of how much it will cost. On average full property management is about 20% of the monthly rent whereas a tenant finding fee will be a one off payment of about 10% of the monthly rental.
- When working out the financial viability of having a rental property industry experts advise that you need to factor in the potential of the property being unoccupied. Whether this is for maintenance or due to not being able to find a tenant, experts say you should have savings to cover the property’s rent for two months a year.
- Make sure that you pick the right area to purchase a property in. It’s advisable to do your research, is there high unemployment in the area you are looking to purchase? What are consumer trends, do people rent opposed to buy? Make sure you are confident you will be able to find the right sort of tenant in the area you are thinking about purchasing in.
What home insurance do I need as a landlord?
You should treat your rental property like a business and therefore make sure you invest time in ensuring you have the right insurance. Landlord insurance is a very different product to your personal home insurance and the two should not get mixed up. As a landlord you need a product that will protect your main building, outbuilding and any contents that you leave within the property, some products offer boiler cover, but make sure you read the small print so you have all the relevant information to hand. It’s vital that your tenant takes out their own contents insurance to cover their personal belongings as this will not be covered within your insurance.
There are some clauses that you need to look out for when purchasing your landlord insurance like how long the property can stay empty for. Typically policies offer 30 days cover should the property be unoccupied. So you should factor this into any work that might need doing or the possibility of not being able to find a tenant. Every landlord’s worst fear is that their tenant doesn’t pay or their property goes unoccupied for a period of time. Premium landlord insurance policies offer the option to guarantee income in case these situations arise.
It’s a good idea to check whether the policy you are purchasing includes public liability or not. This will essentially cover you in the event that someone claims against you for an accident that is considered to be the landlords fault. For example if there is a leak in the property that has caused damage to your tenant’s belongings, they could potentially claim against the landlord for the property not being maintained properly.
When considering which insurance company to purchase with it’s a good idea to speak to other landlords to see which insurers they have had good or bad experiences with. You can also look at how the company has been rated by independent bodies such as Defaqto and look at reviews on sites such as Trustpilot or Review Centre, this should give you some independent advice.
Can you give me a check list for being a landlord?
So we’ve gone through the pros and cons of having a buy-to-let mortgage and the insurance you need to purchase, but what other things do you need to look out for? To keep things condensed, here’s a check list of some of the other things you need to think about:
Advertise your property
Whether you are advertising the property yourself or going through an estate agent you need to maximise the properties potential. Ensure your property is featured on relevant websites such as Rightmove and that the pictures taken showcase the properties strengths and look desirable. It’s advisable to ensure all the features and benefits are clearly listed and a floorplan accessible so people have as much information to hand as possible.
Are you up to speed with the latest landlord regulations? Landlords have a duty of care towards their tenants and recent legislation states that landlords are now required to install smoke alarms on every floor where there is living space and carbon monoxide detectors must be installed in every room where there’s a solid fuel-burning appliance. A landlord must also provide their tenant with a valid gas safety certificate at the start of their tenancy.
Check you tenants
This is one of the most important things you need to do as a landlord as having the wrong tenants in your property could have disastrous effects. Conducting tenant reference checks is highly advisable and if you go through a letting agent this is something they can help you with. This check looks at their current employment details, addresses, bank statements and reference from their current landlord. By collecting all this information you are able to make an informed decision about a potential tenant. As part of the pre-tenancy process landlords need to adhere to the Right to Rent scheme by checking whether tenants have the legal right to rent in the UK. If you let your property out through an agent they can carry out these checks for you. It’s really important these checks are completed as any landlord that is found not to be carrying out these checks could be fined up to £3,000 per tenant.
Energy Performance Certificate
When a tenant moves into your property you by law need to provide them with an Energy Performance Certificate (EPC) and in 2008 it became law that all advertisements must contain an EPC rating. Therefore, if you haven’t done one, you need to before you advertise the property. Every time you have a new tenant you need to provide the EPC rating to show how energy efficient the property is.
Protect the deposit
As with every rental property there will be a deposit the tenant must pay to the landlord in case anything is damaged during the rental period. Landlords must put the deposit in a government-backed tenancy scheme within 30 days of receiving it. If a letting agency is managing the process, then you do not need to worry, the agency will look after this for you. If you are managing the process yourself here are three government approved schemes that you could use:
- Deposit Protection Service
- My Deposits
- Tenancy Deposit Scheme
Prepare an inventory
This is something you must do before every new tenant enters your property as it means you can itemise all the finer details and ensure everything is accounted for. An inventory protects yourself and the tenant from potential disputes later down the line. If you are having your property managed by a letting agency they can conduct this for you.
Hopefully you’ve found this useful if you are either thinking about purchasing a rental property, or preparing for a new tenant.