When it comes to new investments, you may find yourself returning to one of the most traditional. If you’re in the market for a new asset to add to your portfolio, you could do worse than to seriously consider buy to let.
As it’s such a significant investment, you should view buy to let properties in the same way you would look at your business. Each decision needs to be carefully weighed and you will have to understand the potential risks and rewards if you want to make it a success.
Why invest in buy to let?
In a world of low interest rates, property certainly has some appeal. It can make financial sense to divert finances from low-yield savings accounts into bricks and mortar while mortgages are relatively cheap. With property, you have a tangible asset that you may find easier to keep on top of. In comparison to a number of investment possibilities out there, it offers a stable and safe asset.
Even when dealing with an upcoming Brexit and the uncertainties that is causing, it’s worth remembering that people will always need somewhere to live. Indeed, a recent study by lender Paragon found that the proportion of landlords saying tenant demand is growing has risen to the highest level in almost a year.
Know your finances
You need to know where you stand before you commit to a buy to let. It’s important to factor in all costs before deciding if it’s something you want to go ahead with. You’ll need to think about the amount of rent you can realistically ask tenants to pay in your chosen area and whether it will cover all the outgoings associated with a buy to let.
Consider maintenance costs, mortgage repayments, stamp duty and the newly-introduced letting agent fees you will have to pay. You may also want to put some money into redecorating or paying for a professional cleaning service between tenants.
Choose the right location
Location – no other property-related term is valued so highly it is repeated multiple times. It doesn’t mean that you need to look at the most expensive and desirable areas for your purchase. It means you need to analyse the locations you’re considering and evaluate what sort of property is going to be most in demand.
For example, if you’re looking at vibrant city centres, you should consider apartments for young professionals. Meanwhile, if you’re looking at the suburbs, look at houses with gardens and parking for young families.
Set up a business
Some buy to let investors have taken it one step further and actually set up a business to manage their properties. An August study from Precise Mortgages found that “55% of landlords will use limited companies for purchases, which is more than double the 24% of landlords who intend to buy as an individual”. Meanwhile, 71% of landlords with more than 11 properties will use a limited company for their next buy to let purchase.
So if you’re looking to treat your buy to let portfolio as a true business, it could be worth looking into setting up your own limited company. When doing so, it is also a good idea to take on legal advice, particularly if this is not something you’ve done previously.