There are many reports of a buy-to-let boom. Recent figures indicate that interest rates on savings are stagnant, and investors are therefore encouraged to jump into the property market.
Last year, the value of total buy-to-let mortgages on new purchases increased to almost £12 billion, 25% higher than 2013.1
Rosie Millard entered the sector the last time it was experiencing a boost. She offers advise on those considering the market.
A new build?
“First, you could buy something that doesn’t yet exist; the off-plan purchase,” she explains. “You go to see a developer, they show you plans for a gorgeous one-bedroom apartment in a new block somewhere near a canal.”
Although this project will not yet be built, Millard says that new builds can be better than traditional Victorian conversions.
“In my experience, the new build has many advantages,” she says. “Conversions can be lovely, but they can also be a nightmare, with issues about noise, stairs, and facilities.”
She says that these properties were never intended to be flats, and therefore do not suit this purpose as well: “Whereas a new building, which contains flats that were always imagined as flats, with a groovy outlook over a river, and a lift to boot; that’s what your tenants will want. Also, don’t bother with spare rooms. A one-bedroom flat is the easiest thing to rent by a country mile.”
The Easy Way to Buy to Let
She also suggests that buying off-plan can result in a discount from the developer. At this stage, the investor usually pays 10%, and the rest on completion.
The developer will be encouraged by the early payment, and the value of the flat may even increase by the time it is completed.
However, with these types of property, Millard explains that landlords need lots of patience: “Pesky things which, at the start, refuse to work, from electronic garage doors to outdoor lights and carpets. Just be patient.”
“Organise new curtains and carpets, and make sure the kitchen has a sparkling array of basics,” Millard advises. “Then get a good bed and a basic set of furniture, so if your tenant doesn’t want it, you can take it away without too much trouble.”
If the tenant has requested furniture, Millard says it is still always best to leave pictures, bed linen, towels, and ornaments to them: “So they put their own things in and feel at home.”1
Millard also explains that if the property is offered furnished, the landlord can receive a 10% tax break on the rent to compensate for any wear and tear to furniture.
Do the maths
Investors who use a loan to fund their property should have worked out, from the rental values in the area, if they can afford the repayments, and have enough left over for maintenance and any void periods.
Most mortgage lenders request that the rent comes to around 125% of the interest payments. It is also vital to work out the yield; the rental income as a percentage of the property price. A solid annual rental yield is around 5%.
Managing the property
Letting agents can be expensive. If they are only responsible for finding a tenant, then the cost will be less than if they manage the property also.
Investors should remember that they can compile an inventory themselves, and also provide the assured shorthold tenancy agreement (AST) themselves, which can be found in any legal stationers. This could save hundreds of pounds.
If the agency is managing the property, they will market it, show tenants around, sign them up, and chase them if they do not pay rent. However, landlords should remember that online payments will be set up, a guarantor can be required, and they will hold two months’ deposit already.
Landlords can advertise on a website such as Gumtree, however, they should ensure they take someone along when meeting possible tenants.