This article originally ran on Mortgage Solutions’ sister-title Your Money.
With a wave of new mortgage products for landlords providing a solid return on investment, mortgage broker, Springtide Capital, says there has never been a better time to become a buy-to-let investor.
According to the broker, in the past year the cost of rates are down nearly 25%, making a significant difference to funding for potential borrowers.
Further research also indicates that while the mortgage market is appealing to BTL landlords at present, there are still a number of novice property investors who are making common mistakes with their portfolios and finances.
Nicholas Barnes, head of research for Chesterton Humberts says: “Building a BTL portfolio does not automatically guarantee financial success and before entering the market, investors would be well advised to prepare a detailed business plan to prevent nasty shocks further down the line.”
Barnes says that a basic checklist for BTL landlords would include the following considerations:
• Tenant demand: the first question to ask is what is the likely level of rental demand for my properties? Thorough research on location and type of property which is most in demand should be conducted.
• Pricing: again, research your target market in terms of rental levels and what is realistically achievable plus anticipated uplift over time (which will likely be linked to changes in RPI).
• Acquisition & ongoing costs: operating costs as well as purchase costs must be allowed for as this is the only way (once your rental income has been factored in) of calculating what your gross and net yields will be.
Remember also to allow for the inevitable void periods and allow for a sink fund to cover repair & maintenance costs along with professional fees and possible legal bills. Don’t forget the tax aspects either!
• Exit strategy: before committing, you should always consider your exit options – for example, will you be able to sell your property easily should you want to? It is worth noting that property is generally regarded as a longer term investment as it is less liquid than, say, equities, securities or commodities.
