If you are considering investing money then most will consider doing this in property. This could be in the shape of buying their own home, or even becoming a landlord. Buy to Let properties are a very popular option, and gives you the potential to create a secondary income. At Norwich Home Buyers we have many customers who come in to ask what is Buy to Let? So in this article we will answer just that.
What Does Buy To Let Mean?
The simplest way to describe buy-to-let is when a property is bought specifically to be rented out rather than be lived in by the person who is actually purchasing the home. It is a very popular method for investors to generate an extra income. There are many factors which differ from owning your own property, in which we will detail below.
What Is A Buy-To-Let Mortgage?
When it comes to purchasing a buy-to-let home if you are not able to pay for this outright, then you will need to apply for a mortgage. This mortgage however is specific for the reason you are buying. When it comes to your mortgage application, this will not be based on your salary, but on the rental value of the property. After this a lender will take into account your salary.
In order to qualify for a buy-to-let mortgage you will normally have to show a 25% increase in the monthly mortgage payments. So for example if your mortgage is £1000 per month, you would need to show that you can achieve £1250 for the property.
A deposit is also required. However, unlike a normal property being 20%, you are required to put in 40%+. This will help to secure your mortgage, as your rental value to mortgage value will be more.
What Sort Of Property Should I Buy?
When it comes to deciding the property you want to buy this is going to be down to a few factors. Firstly will be yourselves. What property do you want to buy? There is no limit to what you can buy. And Secondly will be the tennant. Potentially your first thought about the type you want to buy will be dictated by who you are looking to attract. A single person may be suitable to flat, but then a family will need a house with a garden.
Location will also need to be taken into consideration. The availability of the homes, but also what is most popular. Naturally if you are purchasing a property in a city centre location you may find there are more flats than homes. Getting these three points correct will mean you are able to demand the rent in which you need to make the investment viable.
How Do I Choose Where To Buy?
As with all homes location is going to be key. Usually if you are purchasing your first property one close to home is going to be best. This way if you need to attend the home for some reason then you are able to without any issues. If you decide to utilise the services of an estate agent, then you can pick anywhere you like. This is due to the agent handling all enquiries, queries or even repairs.
When looking for a location you need to decide who your target renters are going to be. As mentioned before city centre living will lend itself more to flats. Whereas a more family centered location lends itself to houses with garden space.
How Much Responsibility Do I Have?
As a landlord you do have a number of legal responsibilities in which you have to fulfil. The tenants within your property need to be assured that they are legally allowed, and protected to live in your home. Therefore it is your job to make sure that a tenancy contract has been drawn up. As well as making sure their deposit is in safe hands.
When it comes to contract there are many types, however the mostly commonly used is an assured shorthold tenancy or AST. This is usually on a 6-12 month basis, and allows either party the protection from anything that may occur. At the end of this contract you may extend for your tenants, or decide to ask them to vacate the property if you have other plans.
As a landlord as well you must be tied into a deposit protection scheme. Yourself and your estate agent may be fined without. The deposit is used by way to secure the property, and is also there for any damages or issues that may occur in the property during the tenancy.
Other landlord responsibilities include:
- Make the property safe to live in
- Deal with all repairs be that internal or external
- Maintain heating and water systems
- Ensure gas and fire regulations are adhered to
- Provide tenant with all legal paperwork
Do I Need Insurance?
As a landlord yes you will need insurance. The main insurances you need to consider are the following:
Building Insurance
Many landlords will be required by their mortgage lenders to have buildings insurance. This will pay out in the event the property is damaged or destroyed. Which may require it to be rebuilt or repaired. Always seek the advice of a chartered surveyor when carrying out your building insurance as they will be able to give you a correct ‘rebuild’ value. This is different from the price you paid.
Contents Insurance
Contents insurance is more applicable if you are providing a furnished property However, it is also worth considering for carpets or white goods. You are not responsible for insuring your tenants belongings.
Landlord Liability
This will cover you in the event any of your tenants are injured or die on your property. Usually this is the cover of choice, however some cases do mean it is required in some format.
To Conclude
Properties do offer great investment opportunities especially when purchased in the right locations. Rental properties are still very popular and do not show any signs of becoming any less. What is Buy-To-Let is a question we are asked regularly at Norwich Home Buyers, but the above guide does really show the process. If you are considering Buy-To-Let and would like some more information then do feel free to Contact Us.