Ten tips to buy: essential tips for real estate investment

Buy-to-let is much harder than it was before, but investors are still interested in ownership

Ten tips to buy: the essential advice for real estate investors

  • Our buying guide for rent explains the essential elements of real estate investment
  • The periodic update guide explains how to evaluate investments and obtain a profit
  • Know the best locations to invest in properties, buy mortgages, rental income and what the changes in taxes mean for owners and investors

Simon Lambert for Thisismoney.co.uk

Buying to rent is much more difficult than it was before. A fiscal offensive in the purchase of real estate investments and a tax incursion in the rental income of the owner have taken care of that.

But for many Britons, the idea of ​​investing in property remains attractive, as they rely on bricks and cement and may feel that they can add value to a home in a way that they can not make it to an investment fund.

A world of low interest rates helps polish the attraction of buying to rent. The returns of savings are low and mortgages are cheap.

But an increase in interest rates is forecast and the 3% surcharge on stamp duties consumes a large amount of your money, while the loss of the total tax relief on the mortgage has declined.

Buy a house of £ 150,000 and you will lose £ 5,000 in taxes on the stamp tax and your rental income will now be taxed, not your profit.

However, buy-to-let remains popular. Therefore, if you are considering it or if a current owner is looking to improve your game, here are the top ten tips for buying and leaving This Is Money, in our essential long-term property investment guide and be a good owner.

Buy-to-let is much harder than it was before, but investors are still interested in ownership

Buy-to-let is much harder than it was before, but investors are still interested in ownership

Why invest in buying to rent?

As an income investment for those with enough money to raise a large deposit buy to make it look attractive, especially compared to low savings rates and stock market swings.

Meanwhile, the real estate market that recovered after its lows of financial crisis has encouraged more investors to take the property in the hope that its value will rise.

The increases in the price of housing have discounted most of the people of real estate investment in London, but some areas of the United Kingdom still have to recover the lost ground after the financial crisis and investors are looking for more and more returns.

Mortgage rates at historic lows are helping investors buy to allow businesses to stack.

But be careful with low rates. One day they must get up and you need to know that your investment can stand that test.

An increase in taxes is also being implemented, since relief of interest on the mortgage to buy and rent is eliminated and replaced with a 20 percent tax credit.

In addition, since April 2016 the owners now have to pay an additional stamp duty of 3% on property purchases.

It is also worth noting that the Bank of England has purchase mortgages to rent in its spotlight.

However, despite the changes in taxes and the potential for mortgage purchase costs to increase, there are positive aspects.

The increased demand of tenants, the rents that should increase with inflation and the long horizon of rising interest rates, mean that many investors are still tempted to buy to rent.

If you are planning to invest, or just want to know more, we tell you the ten essential things you should consider for a successful purchase investment to rent below.

Like any investment, buying to rent comes without guarantees, but for those who have more faith in bricks and mortar than the stocks and shares below are Money's top ten tips.

Does the purchase still accumulate to leave?

My property is my pension. That was the popular saying when buying to rent was a furore and every other person he knew imagined his chances as a minor property tycoon.

But life has become much more difficult for homeowners, with a series of tax appropriations and stricter mortgage rules.

Buy a buy-per let of £ 140,000 and the tax collector will take £ 4,500 – put your deposit of £ 40,000 in a pension instead of two years and increase it to at least £ 50,000.

So, do you buy to let it still accumulate as a way to build your wealth? We discussed that in this week's podcast.

Press play to listen to the previous program, or listen (and subscribe if you like the podcast) to Apple Podcasts, Acast and Audioboom, or visit our podcasts page This is Money.

1. Investigate the market in buying to rent

If you are new to buying to rent, what do you know about the market? Do you know the risks, as well as the benefits?

Be sure to buy to rent the investment you want. Your money could work better elsewhere.

In recent years, a high-rate savings account would beat most investments. Now the rates are lower, but investing in buying to rent means immobilizing capital in a property that may lose value.

This compares with the possibility of an annual return of 5% of an investment fund based on income, or 3% on a fixed rate savings account.

Remember that the return of an investment in funds, stocks or an investment trust through Isa will allow you to escape from the income tax and obtain tax-free capital growth. You will also have the possibility to sell quickly if you wish.

Ten tips to buy to rent

This guide has been helping owners make the right decision for more than a decade.

It is updated regularly with new information and is designed to help you properly evaluate purchases for rent.

If you have a question to buy, send us an email to experts@thisismoney.co.uk

The other side of the coin is that you can not buy an unwanted investment fund and start to renew it and add value yourself.

Investing in buying for rent involves committing tens of thousands of pounds to a property and, usually, obtaining a mortgage. When housing prices rise, this means that it is possible to obtain large leveraged profits above your mortgage debt, but when they fall, your deposit is affected and the mortgage remains the same.

Investment in property has paid off for many people, both in terms of income and capital gains, but it is essential that you enter it with your eyes wide open, recognizing the possible advantages and disadvantages.

If you know someone who has invested in buying or renting a property before, ask about their experiences: warts and all.

The more knowledge you have and the more research you do, the greater the chances that your investment will yield.

2. Choose a promising area to invest in the property

Promising does not mean more expensive or cheaper. Promising means a place where people would like to live and this can be for a variety of reasons.

In what part of your city has a special appeal? If you are in a commuter belt, where does it have good transport? Where are the good schools for young families? Where do students want to live?

It must match the type of property you can afford and want to buy with locations that people who would like to live in those houses would choose.

These questions may sound too simplistic, but they are probably the most important aspect of a successful purchase investment to rent

In most cases, people tend to invest in properties near their place of residence. On the positive side, they are likely to know this market better than anywhere else and can detect the type of property and location that will go well for them. They also have many more possibilities to control the property.

However, it is also worth keeping in mind that if you are a homeowner, then you are already exposed to the property where you live, and looking for a different type of home in a different area could be a good decision.

3. Do the math in buying to rent

Before thinking about looking for property, sit down with a pen and paper and write down the cost of the houses you are looking at and the rent you will probably get.


Mortgage calculator

Calculate your monthly payments

"Buy-to-rent" lenders often want to rent to cover 125% of mortgage repayments, often now 150%, and most now demand deposits of 25%, or even higher, for rates considerably higher than residential mortgages .

The best purchase and rental mortgages also have great deal rates.

Once you have the mortgage rate and the rent likely ordered, you should be clinical when deciding if your investment works.

Do not forget to take maintenance costs into account.

What will happen if the property stays empty for a month or two?

These are all things to consider. Make sure you know how much the mortgage repayments will be and if you are a tracker, allow the rates to increase.

The best mortgages to buy

The cheapest mortgage rates to buy are in two-year arrangements and those with a large deposit are as low as 1.37 percent of TSB and 1.39 percent of Virgin Money.

However, a five-year solution may be a more sensible plan for many homeowners, and the highest rate here is The Mortgage Works, which covers 1.99 percent.

However, those are low-value mortgages, and if you only have 25 percent to quash, the best two-year solution is 1.75 percent of Virgin Money and the best correction of five years is 2.55 percent of the Principality.

However, beware of large fees, the offers mentioned above include charges of up to £ 2,500.

When it comes to obtaining a purchase mortgage to rent, a good stock broker will be of great help and can tell you what deals you will actually get.

To compare the best offer for your circumstances, use our mortgage and purchase search engine with the help of the London & Country broker.

The purchase mortgage to rent that will be offered to you depends on your circumstances and the criteria of the lender. Ideally, they prefer larger deposits, a strong income to cover mortgage payments and healthy profits elsewhere.

buy to make better purchases

4. Compare prices and get the best purchase mortgage to rent

Do not just enter your bank and form a partnership and apply for a mortgage. It seems obvious, but the people who do this when they need a financial product are one of the reasons why banks get billions in profits.

It is worth talking to a good independent broker when looking for a purchase mortgage to rent. Not only can you explain the available offers, but they can also help you assess which one is right for you and whether you should correct or track it.

However, you must still do your own research, so that you can enter the conversation armed with the knowledge of what type of mortgages should be offered.

This is the partner of the carefully chosen mortgage mortgage agency of Money & London. London & Country offers free advice. You can find more information and use our comparison tool to find here the best purchase mortgage to rent.

5. Think of your target tenant

Instead of imagining if you would like to live in your investment property, put yourself in the shoes of your objective tenant.

Who are they and what do they want? If they are students, it should be easy to clean and comfortable, but not luxurious.

If they are young professionals, they should be modern and elegant, but not dominant.

If it is a family, they will have many of their belongings and will need a blank canvas.

Remember that allowing tenants to make their mark on a property, such as decorating or adding images, or removing unwanted furniture makes you feel more at home.

These tenants will stay longer, which is great news for the owner.

It is also possible to contract an insurance policy against the tenant who does not pay the rent, generally known as rental guarantee insurance. This can cost as little as £ 50, and is available as a separate product from a specialized provider or as part of a broader owner insurance policy.

6. Do not be greedy, look for rent performance and remember the costs

We've all read the stories about millionaires buying for rent and their huge wallets.


Mortgage calculator

This calculator shows the rental yield of your investment property as a percentage of its value

But while you can They expect increases in the price of housing in the long term, experts say they invest to obtain income, not for the growth of short-term capital.

To compare the different property values ​​use your performance: it is the annual income received as a percentage of the purchase price.

For example, a property offering a rent of £ 10,000 that costs £ 200,000 has a yield of 5%.

The rent should be the key return to buy to rent.


Remember, if you are buying with a mortgage, the return on the rental price to the property will not be the return you will get.

To calculate your annual return on investment, subtract the annual cost of your mortgage from your annual income and then highlight it as a percentage of the deposit you deposited.

For a £ 100,000 property that could be rented for £ 500 per month, you would need a deposit of £ 25k and approximately £ 2,000 in purchase costs.

£ 75k mortgage at an interest rate of 5% = £ 312.50

£ 500 rental income x 12 = £ 6,000

Difference = £ 2,250

Deposit + purchase costs = £ 27k

Annual return = 8.3%

Do not forget that taxes, maintenance costs and other expenses of the owner will be eaten in that return.

Most of the mortgages to buy for rent are made only for interest, so the amount borrowed will not be paid over time.

This is efficient in terms of taxes, since you can offset the mortgage payments with your tax bill.

However, while you could once offset the total cost of your mortgage with the taxes that are now being consumed and by 2020 you will get a maximum tax credit of 20 percent on your mortgage payments.

If you can get a rent refund substantially for the mortgage payments, once you have accumulated a good emergency fund, you can start saving or investing any additional cash.

However, remember that people rarely buy a house directly and have operating costs, so the costs of the mortgage, maintenance and agents' fees must be calculated and fed back.

You may want to consider whether buying to rent still outperforms an investment fund or trust once these costs are taken into account.

Once the mortgage, costs and taxes are taken into account, you will want the income to accumulate over time and then potentially be able to use it as a deposit for future investments, or to pay off the mortgage at the end of your term.

This means that you will have benefited from the rental income, paid off the mortgage and maintaining the total value of the capital of the property.

7. Look further or making a property up

Most of the investors who buy to rent look for properties near where they live. But your city may not be the best investment.

The advantage of a nearby property is being able to monitor it, but if you are hiring an agent anyway, they should do it for you.

Extend your network and look at cities with good travel links, which are popular with families or have a major university.

It is also worth looking at properties that need improvement as a way to increase the value of your investment. Tired properties or those that need renovation can be negotiated a lot to get a better price and then they are arranged to add value.

This is a way in which it is still possible to see a solid and rapid return of your invested capital. If you can add some value to a house immediately, then it gives you a greater margin of safety in your investment

However, remember to make sure that the price is low enough to cover the reconditioning and some profits and that it allows the inevitable overrun of costs.

A good rule to follow is the approximate calculation of the developers of the property, in which you want the final value of a renovated property to be at least the purchase price, plus the cost of labor, plus 20 percent.

8. Dodge the price when you invest in property

As an investor that buys for rent, it has the same advantage as a first-time buyer when it comes to negotiating a discount.

If it does not depend on selling one property to buy another, then it is not part of a chain and represents a lower risk that a sale will fail.

This can be an important asset when negotiating a discount. Make low offers and do not be persuaded to pay in excess.

It is worth knowing your market when negotiating. For example, if the market is softer and houses take longer to sell, you can negotiate better. It is also useful to find out why someone is selling and how long they have owned the property.

An existing owner who has owned a property for a long time and is charging his capital gains may be more willing to accept a lower offer for a quick sale than a family that needs the best possible price to afford to move .

9. Know the dangers of buying to rent

Before making an investment, you should always investigate both the negative and positive aspects.

House prices are rising at this time, but growth has slowed down and could fall again. If the prices of the properties go down, will you be able to continue maintaining your investment?

Meanwhile, the rates are low at this time and that is encouraging people to invest with a rent that covers the mortgage, but what will you do when the rates rise?

Consider also the standard variable rate to which you can move after a fixed rate period. What will happen if you can not remortgage?

Even in popular areas, properties may be empty. A general rule that many buy-per-let investors apply is to keep in mind that the property stays empty for two months a year; this provides a considerable margin of protection.

Households often need repairs and things can go wrong. If you do not have enough in the bank to cover a major repair of your property, such as a new boiler, do not invest yet.

It is also essential to read taxes on buying to rent. You now incur an additional 3% surcharge on stamp duty and soon you will not be able to establish the interest on the mortgage with the rental income before calculating the income tax. Instead, a 20 percent tax credit will apply. Read here about taxes on buying to rent.

10. Consider how practical is the owner of an owner

Buying a property is only the first step. Will you rent it yourself or will you get an agent to do it?

The agents will charge you a management fee, but they will take care of any problems and have a good network of plumbers, electricians and other workers if things go wrong.

You can earn more money by renting the property yourself, but be prepared to give up weekends and nights on visits, publicity and repairs.

If you choose an agent, you do not have to look for a presence on the High Street, many independent agents offer excellent and personal service.

Select a short list of large and small agents and ask them what they can offer.

If you are considering going alone, look at where you will advertise your property and where you will obtain documents, such as lease agreements.

It's really worth taking care of your tenants. Do this and they will take care of you.

The biggest obstacle in many of the investment returns of owners to buy to rent is the period of emptiness. A moment when you do not have anyone on the property. Good tenants who want to stay help avoid this, and if they continue they can even recommend their property to someone they know.

Keep up with maintenance, make sure your property is a pleasant place to live and try to build a good personal relationship with your tenants.

This guide was written for the first time in February 2006 and is periodically updated


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