Here are some top tips for buy to let success.
There’s money to be made, and lost, with buy to let. If property investment is relatively new to you then the following buy to let tips might be helpful.
The right property
Spend some time researching what kind of buy to let you want:
Tenants
What type of tenants would you like? Students, singles, families? They will all want slightly different things from your property. Understand this and make the property fit the tenant.
Property
What type of property would you like? Flats, terraced, semi, HMO. This is all linked to the requirements of a tenant type. Young professionals may forgive a lack of garden but families with young children won’t.
Location
Make sure the location has the right tenant demand for your chosen market. Look into transport links.
Finances
Most landlords will look at the cashflow of a property when assessing whether to purchase. This is important but it’s only a part of the financial aspects you need to consider.
You first need to calculate ‘how’ you can purchase the property. This means looking into cash for deposits, mortgage fees, survey fees etc and availability of buy to let mortgage finance. You need to have cash upfront to fund these items.
Next consider how you will fund the property through any void periods. This is when you have no paying tenants. Remember the mortgage needs paying every month! Then think about maintenance and repairs. This depend on the age and type of property you have but bills are likely to be incurred.
Letting agents
Will you need a letting agent? Being a landlord can be time consuming so you may prefer to get an agent onboard to deal with the tenants. Generally they will charge a percentage of rent collected each month so work this into your cashflow.
There are specific legal duties for a landlord and the agent should also be able to assist with these.
Insurance
Your rental property needs an insurance property that allows AST letting. Taking out a standard home insurance policy will not give you very much, if any, protection. Policies can cover the usual buildings and contents but will also have the option to protect your rental income.
Rent collection & arrears
Having an agent as the rent collector will save a lot of time if the rent needs chasing or tenants get into arrears. It’s vital that you or the agent vets all prospective tenants before granting the tenancy but even then problems can still occur.
Eviction is the last resort and as always there are strict processes that you must adhere to. Again, the agent should be able to handle this for you.
Property maintenance
Tenants should make good any damage that they cause but all properties will suffer from wear and tear and occasionally some damp from a broken gutter. To maximise both occupancy and rental income we recommend that routine maintenance issue are fixed as they occur. Don’t leave the gutter to leak onto your property for months as its likely to cause damp.
Between tenancies you may need to freshen up the property with a lick of paint and a deep clean. Over the longer term a schedule of redecoration will need to be considered along with new bathrooms, boilers etc at some point to keep tenants attracted to the property.
Tax
The tax treatment for a buy to let will depend on who owns it:
- YOU – Personal income tax via Self Assessment
- LIMITED COMPANY – Company accounts which may incur corporation tax. Any income you take out in the form of salary or dividends will then carry on to your personal Self Assessment
It’s helpful to have a good system which can show your income per property and also the expenses. If you employ a letting agent then they will most likely send a monthly statement which will show the rent, their costs and any costs deducted from the rent. But you will also pay out for items directly including insurance, legal fees, maintenance and repairs.
Make sure you are including all the expenses for each property to reduce your tax. If you are not sure then ask your tax adviser.
It’s an investment!
Don’t get emotionally involved with your buy to let. It is a business investment and you need to maximize your profits. Consider what your tenants want or need, not what you like!
Speak with the local letting agents and listen to their advice for how to best to set up your buy to let property.