Buy to let

First time investors: pro & cons

Investing in property has become one of the most popular forms of both saving and provision of income. Of the main advantages, personal choice and control are perhaps the most appealing. Historically, property has always provided a haven for wealth, especially during stock market fluctuations and the undulations in the interest and exchange markets. However, this form of investment has potential pitfalls. Investors must not over-commit themselves financially, or borrow over and above a realistic buffer level. Calculation and judgement must be used to assess the impact of a variety of perhaps un-highlighted issues. These are listed so you are able to build them into your calculations.

Voids – Even the most popular apartments have vacancy periods, these may relate to an overhang of the previous tenant or perhaps a timing issue in the new tenant's move-in. Everyone has experienced the trauma of moving home and tenants are not excluded from this. Your finances should allow for periods of interrupted rental flow. If you need this month’s rent to cover this month’s mortgage do not become a landlord. Our advice is that you have a three-month buffer zone at all times.

Repairs – although many new apartments come with a warranty period you cannot assume that all of your expenses will be covered. There may, on occasion, be emergency repairs needed. There may also be certain changes or improvements required; an expense that, once met, may ensure that your tenants remains on in the property for a longer period. You must appreciate that the tenant is not responsible for ‘reasonable wear and tear’. Insurance policies and security deposits will normally cover any breakages or damage.

Service Charges – these vary depending on what kind of development you buy in. The cost is borne by yourself and should be built-in to the rent you are receiving. The charge usually covers building insurance, care of communal areas such as lighting, heating, security external repairs and other items as applicable.

Making your investment

Are you investing to generate income or hoping to see your capital grow? Are your expectations realistic?
Do you have sufficient capital of your own to invest in a property?
Are you prepared to tie-up your capital for a considerable period of time?
Will you have sufficient savings and other forms of capital after you have made this investment?
Have you taken specialist tax advice about the implications of buying and selling an investment property, and the tax treatment of all income and expenditure from renting?

Choosing and managing your property

It is equally important that the property you buy is appropriate for the purpose and is properly managed thereafter. You should consider the following points before proceeding.

Are you regarding this as a medium to long-term project?
Have you consulted a professional and qualified local letting agent before beginning your search for a property?
Have you thought about the type of household that will want to rent your property?
Have you considered that demand for this type of property may change from year-to-year?
Have you made independent enquiries to confirm a likely rental figure?
Is the location of the property attractive to tenants?
If you are thinking of buying a leasehold property what is the length of the lease remaining and is sub-letting allowed?

Choosing your mortgage

Have you considered what type of mortgage to buy your property with?
Would you welcome assistance from a mortgage broker?
Have you considered the impact of any future rises in interest rates?
Could you meet the monthly mortgage payment from your own resources? If rent was not paid or the property was left vacant?

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