Whatever generation you are part of, you will no doubt have had it drummed into you that the best investment is in bricks and mortar. So, deciding to put your money into a property for others to rent seems to be a sensible move, but there is a lot to consider before you do.
The buy-to-let investment market has been through a lot of changes in the last few years, so before making any investment, it is important that you understand what you need, what the costs are and your responsibilities as a landlord.
Mortgages
Few of us have enough cash in the bank to buy a property outright, so for most, a buy-to-let mortgage is necessary. These can vary greatly, so it is important that you explore all of your options thoroughly before you sign on the dotted line.
Before you look into a mortgage, you to know the type and location of the property you want to buy as well as the type of tenant you will be aiming it at. All of this will affect how much money you are able to make, and thus determine how much you can borrow and what repayments you can afford to make.
As there are likely to be periods where there are no tenants in the property, or your tenants fail to pay their rent, it is recommended that you have between three and six months worth of mortgage payments in reserve. This money can also be useful for any costly repairs that might need making to the property.
Income Tax
As the rental payments you receive are considered to be income, you will be subject to income tax. The amount that you pay is based on the profit that you make, so you can reduce your tax bill by offsetting management costs such as ground rent, water rates, management fees, insurance and repairs. You should also make sure you are aware of any other taxes that you may be subject to, depending on which tax bracket you fall into.
Property Management
The profits from a buy-to-let property are to be enjoyed but there is also a lot of work that goes into being a landlord. This includes everything from finding tenants, paperwork, tenant issues, repairs and maintenance and evictions. This is why many landlords now seek to employ a property management company that does involve a fee but frees you from the time intensive process of looking after a property.
When you rent out a property on an Assured Shorthold Tenancy (AST) you must keep the deposit that you are paid is kept in a secure deposit scheme. This ensures that the deposit cannot be spent on other things and not available to return when the tenant leaves the property. The government backs three official schemes and in the event of an eviction they will hold onto the deposit until any dispute has been resolved.
The requirements that a landlord is subject to changes regularly, so it is important that you always keep on top of what you need to do and how to stay within the law.
