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http://www.youtube.com/watch?v=kmfUCVc6-jE
11/05/2012

http://www.youtube.com/watch?v=kmfUCVc6-jE

Nick Rossington, Director of Financial Services at The Buy to Let Mortgage People Ltd outlines the compelling reasons to invest in UK Buy to Let property ove...

11/05/2012

6. Don't be over ambitious

We have all read the stories about buy-to-let millionaires and their huge portfolios. But the days of double-digit house price rises are gone, so experts say invest for income not short-term capital growth.

To compare different property's values use their yield: that is annual rent received as a percentage of the purchase price. For example, a property delivering £10,000 worth of rent that costs £200,000 has a 5% yield.

Return on investment

Remember, if you are buying with a mortgage, rent-to-property price yield will not be the return you get.
To work out your annual return on investment subtract your annual mortgage cost from your annual rent and then work this sum out as a percentage of the deposit you put down.
For a £100,000 property that could rent for £500 per month:

£75k mortgage at 5% = £312.50
£500 rent x 12 = £6,000
Difference = £2,250
Deposit + buying costs = £27k
Annual return = 8.3%

Don't forget tax, maintenance costs and other landlord expenses will eat into the return.

Rent should be the key return for buy-to-let. Most buy-to-let mortgages are done on an interest-only basis, so the amount borrowed will not be paid off over time.

If you can get a rental return substantially over the mortgage payments, then once you have built up a good emergency fund, you can start saving or investing any extra cash.

Remember though, people rarely buy a home outright and they come with running costs, so mortgage costs, agents fees must be worked out and they will eat into your return.

Once mortgage, costs and tax are taken into account, you will want the rent to build up over time and then potentially be able to use it as a deposit for further investments, or to pay off the mortgage at the end of its term.

This means you will have benefited from the income from rent, paid off the mortgage and hold the property's full capital value.

10/05/2012

5. Think about your target tenant

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

Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing.

If it is a family they will have plenty of their own belongings and need a blank canvas. Remember that allowing tenants to make their mark on a property, such as painting, or adding pictures or taking out unwanted furniture makes it feel more like home - these tenants will stay for longer, which is great news for a landlord.

It is also possible to take out an insurance policy against your tenant failing to pay the rent, usually known as rent guarantee insurance. This can cost as little as £50, and is available as a standalone product from a specialist provider, or as part of a wider landlord insurance poliicy, available from This is Money's landlord insurance finder

10/05/2012

4. Shop around

Do not just walk into your bank and building society and ask for a mortgage. It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make billions in profit.

Read This is Money's buy-to-let section for details of latest buy-to-let mortgage deals highlighted and check lenders' websites, Skipton BS, BM Solutions, NatWest, Woolwich and Coventry BS have consistently offered competitive rates in recent years, while Platform (part of Co-op Bank) and Accord (part of Yorkshire BS) have signalled intent.

If you are looking for advice consider using a specialist buy-to-let mortgage broker. Remember asking them for information means you are under no obligation to use them.

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