A Basic Buy To Let Investing Guide
Buy to let investing is something that a lot of people consider because of the perceived benefits. If you are one of these people, this basic buy to let investing guide will help you understand the steps that you should be taking. By the end of this buy to let investing guide, you will be able to tell if this type of property is right for your investment portfolio.
The Mortgage Options
Before you start looking at any buy to let properties, you will have to consider your mortgage options. This is due to the fact that getting the best mortgage deal will improve the return on your investment. It is important to note that when you apply for the mortgage, you will have to tell the lender that you ate purchasing a buy to let property.
This is important because mortgages for these properties will be different to the average residential mortgage. When getting these mortgages, you will have to put down a larger deposit than you normally work. Most lenders will need you to put down at least 25% of the purchase price, but there are some who ask for 40%.
Check The Rental Market
Once you have your mortgage secured, you will need to look at the rental market. Ideally, you are going to be looking for a property that is in an area with a large demand for rental properties, but that is at a decent price. This could be a challenge in certain situations because sellers understand the appeal of their properties and will try to make the most of this.
You should never buy a property without looking at the market first. If you do, you could end up with a property you want to rent out in an area where people do not want to rent. This will cause a negative investment and could cause financial strain.
Calculate The Potential Return
When you are looking at the rental market, you will have to consider what you might be getting as rent for your new property. To determine this, you can look for similar properties which are being rented in the area and see the price. You could also talk with a local estate agent about the rental market as they will have a better understanding of the current market conditions.
Once you understand the potential rent that you could get, you will need to calculate your potential return. To do this, you will need to take the monthly repayment of your mortgage and add any of the costs that come from the purchase of the property such as stamp duty which have been divided by the term of the mortgage. You should then subtract this amount from the rental income that you will potentially get. This will be the potential return on the investment.
If this is a negative number, you need to avoid getting into the buy to let market. If it is a positive number, you should consider if it is a good return. A good return will vary depending on the amount you have invested and what you need from the investment.