investing in buy-to-let

8/13/2019 Investing in buy-to-let

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Contents

Introduction to buy-to-let ......................................................................................................... 3By Sarah Davidson, editor, Every Investor

A market overview: investing in buy-to-let ............................................................................. 4

By Nigel Stockton, financial services director, Countrywide

Bricks and Mortar: !y invest in buy-to-let" ......................................................................... #

By David Whittaker, managing director of Mortgages for Business

C!oosing t!e rig!t location ...................................................................................................... $


C!oosing t!e rig!t %ro%erty ................................................................................................... &'


C!oosing t!e rig!t tenant ....................................................................................................... &(By David Whittaker, managing director of Mortgages for Business

)!e ongoing costs o* being a landlord .................................................................................. &4



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Con*idence returning to %ro%erty market

+ara! ,avidson

ditor

very Investor

Britain is a nation in love with roerty and desite the worst recession to hit the !" since the #$%&s, our

aetite for 'ricks and mortar seems unrelenting(

Not a month goes 'y without headlines revealing the almost ine)ora'le rise and rise of house rices with

*ondon and the South East erforming articularly strongly( In Novem'er to end estate agent Savills even

went so far as to redict that rices in the south east will rise %+ over the ne)t five years with *ondonseeing gains of +-(-(

While outside *ondon the !" roerty market.s return to health has 'een slower, the /oyal Institute of

Chartered Surveyors. latest survey of mem'ers reorts that house rice gains continued to sread to more

areas of the country in 0cto'er with a net 'alance of 12 of surveyors reorting rice rises, u from 1- in

Setem'er and the highest 'alance since mid3+&&+(

Mortgage suly meanwhile is imroving with the government 'acked 4el to Buy schemes 'oosting the

num'er of mortgages availa'le for those with a deosit of 5ust 1(

6nd the Council of Mortgage *enders has reorted that total 'uy3to3let loans advanced to 'orrowers

increased slightly to #-,7&& loans in Setem'er +%, u &(2 comared to 6ugust( Suly of roerty

remains tight and there are still not enough homes 'eing 'uilt in Britain suggesting that rices will continue

to see suort, even though there have 'een warnings sounded of a ending house rice 'u''le fuelled 'y

these government schemes(

Confidence in roerty is 'ack and it isn.t 5ust homeowners who are getting 'raver( Buy3to3let overall in

8uarter three of +% grew comared to the second 8uarter and the same eriod last year( *S* 9roerty

Services claims the average cost of renting a home in England and Wales has reached a record high of

:212 a month( ;ields in the 'uy3to3let market average 'etween 1 and 7 and for some roerty tyes

can reach #&(

More imortantly for many investors 'uy3to3let rovides a regular income(


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A market overview: investing in buy-to-let

By igel +tockton

/inancial services director

Countrywide

=or certain investors, investing in residential roerty is roducing 'etter returns than other investment

vehicles such as savings, stocks and shares(

Should this tye of investment feature in your ortfolio> I would say a resounding yes and not 5ust for the

reasons you think(

?he rivate rented sector is going through a eriod of unaralleled growth and current yield returns on

rental roerty are worth caitalising on as art of a diversified ortfolio, as 'uy3to3let is not 5ust a'out

caital growth(

/eturns on 'uy3to3let investments should 'e considered as a yield and comared against 'onds and gilts(

6ny caital areciation should 'e looked at as a 'onus and not as a reason and rationale for investing(

0eturns on buy-to-let

6ccording to Countrywide lc.s 8uarterly lettings inde) for @+ +%, yields remain strong across England,

Scotland and Wales with Wales seeing the highest yield at 7(7, followed 'y Midlands at 7(1 and North

at 7(-, contrary to oular 'elief which focuses on *ondon and South East(

When looking to invest in residential roerty, you will need to consider all of your outgoings, such as stam

duty and solicitor fees as well as une)ected costs(

0n average, you invest +1 of the house urchase rice( =or e)amle, if urchasing a :#1&,&&& roerty,

you should e)ect to ut in :1&,&&& investment(

6 'uy3to3let investment re8uires a 'uy3to3let mortgage roduct and 'ased on this secific mortgage tye

'eing interest only and assuming 1 on a :##+,1&& loan, you will need roughly :121cm rental income(


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6s well as thinking a'out the initial costs involved in 'uy3to3let, otential first3time investors should also

consider the management of the rental roerty and aointing a lettings agent to manage it(

0nly if you are a rofessional and seasoned landlord should you consider looking after maintenance and

reairs( I have seen many landlords realise, 'elatedly, that a lettings agent is the 'est situation(

0ne key iece of advice is to invest in an area you know well( If you live in Stockort, invest in Stockort,

not anywhere else( By knowing the area, you will have knowledge of the local demograhic, commuter

links, where the oular areas to live are, whether students and young working rofessionals Athe key

demograhic of renters live there(

So what tye of roerty> Should you invest in a flat or house> ?hat will deend on where you live( ?he

centre of Birmingham will give you a different view on aartments than the aforementioned Stockort( It is

widely acknowledged that currently there are not enough houses 'eing 'uilt in the !"( Some industry

e)erts estimate that we need +1&,&&& new homes er year 'ut we have 'uilt only #+1,&&& annually(

Demand is outstriing suly and this will underin house rices in some regions in the medium and long

term( Statistics from the lettings industry and the government suggest that the rivate rented sector is going

to grow over the ne)t decade(

?he num'er of young rofessionals who want to rent and have roerty fle)i'ility is e)ected to grow( ?he

need for first time 'uyers to have a larger deosit to 'uy their first roerty may reclude some eole from

'uying( ?he num'er of eole aged over 1& and living in rented accommodation has grown and is likely to

continue growing(

=inally, do consider 'uy3to3let investment as art of your overall savings strategy( I counsel eole against

investing solely in 'uy3to3let with no other form of savings( With demand for rental roerties high and set to

remain high for the foreseea'le future, 'uy3to3let can 'e seen as a good medium to long3term investment(


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Bricks and Mortar: !y invest in buy-to-let"

By ,avid !ittaker

Managing director o*

Mortgages *or Business

Many eole have more faith in 'ricks and mortar than they do in stocks and shares( 9eole will always

need a lace to live and with the housing shortage it is hardly surrising that once again the oularity of

investing in 'uy3to3let is on the increase( Demand for rental roerty continues to outstri suly in most

regions of the country(

If done right, there is money to 'e made in 'uy3to3let 'ut it is not a get rich 8uick scheme(

/eturns on 'uy3to3let can 'e attractive 'oth 'y way of caital areciation and income from rent 'ut there

are no guarantees that you will make money and like any other investment you could lose money(

6nd unlike a assive investment in stocks and shares it also means that you will have to take on the

resonsi'ilities and hard work of 'eing a landlord(

Ca%ital a%%reciation

It is highly likely that the value of your 'uy3to3let roerty will rise over #& to #1 years nevertheless, this is

not certain and it is imortant that your investment generates a return 'efore taking this into account(

1ields

Most market indices track 'uy3to3let yields in gross terms Aannual rental income divided 'y roerty value(

?here is a general consensus among these various indices that gross yields are currently averaging

'etween 737(1( But if we drill down into the sector, actual yields can vary widely deending on the tye of

roerty with 4ouses in Multile 0ccuation A4M0s currently returning gross yields in e)cess of #&(

But that.s not the whole story(


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+!o%s and amenities

Where are the shos> 4igh street, local arade, shoing centre> What sort of shos are they>

Suermarket, corner sho, farm sho, clothes sho, secialist sho> Where is the hosital> 6re there any

sort and leisure facilities near'y>

+c!oolsuniversities

What sort of schools are near'y> Nursery, rimary, secondary, tertiary> 6re they rivate or state owned>

Which schools have a good reutation> Is there a large student oulation>

?o hel answer all these 8uestions get onto the internet( Check out the main roerty ortals to see e)actly

where roerties are 'eing offered for rent in your area( ?hen look at the rental rices, comare them to

roerty rices and ask yourself if the figures stack u( In general, to get a 'uy3to3let mortgage you will

need a deosit of around +1 and the rental income must 'e at least #+13#1& of the monthly mortgage

ayment(

0nce you.ve done all this, talk to a num'er of local estate and letting agents to garner their views and

advice( When you.ve identified a ossi'le location, go there, walk around and get a feel for the lace( Does

it match u to your research>

If after all this, you decide that there is nowhere close to home that matches your re8uirements or stacks u

financially consider looking further afield 'ut remem'er your costs are likely to go u if you choose this

otion 'ecause, at the very least, you will have to emloy an agent to let and manage the roerty for you(

6ccording to our research, only #- of investors own roerty more than #&& miles from home, so

e)erience shows this is likely to 'e a riskierless via'le otion( *ook on the internet for u'lished research

on rental hotsots( *ook at towns and cities with good commuting links, lots of emloyers, good schools and

erhas have a university( 6nd definitely ask the local estate and letting agents for their oinion(


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C!oosing t!e rig!t %ro%erty

By ,avid !ittaker

Managing director o*Mortgages *or Business

When starting out in 'uy3to3let, the tye of roerty you choose will not only 'e determined 'y how much

you have to send 'ut also where you have chosen to invest and the tye of eole looking for rented

accommodation in that area(

If you are a novice landlord, it is imortant not 'e too am'itious with your first ac8uisition( Consider

urchasing what is known within the trade as a FvanillaG roerty( ?hese are tyically standard #3+ 'ed flatsand +3% 'ed houses that can 'e let to families, working coules and single rofessionals(

Sticking to this tye of roerty and tenant will afford you a much greater choice when it comes to securing

a 'uy3to3let mortgage( ;ields on these roerties tyically average around 7 each year(

6ccording to research u'lished 'y secialist 'uy3to3let mortgage lender 9aragon, the most oular

investment choice for landlords remains the terraced house( ?erraced houses tend to 'e easy to let

'ecause they aeal to a wide variety of tenants, they are often fairly economical to run and are regularly

situated in towns and cities close to good amenities and transort links(

Semi3detached houses, HictorianEdwardian houses converted into flats and urose3'uilt aartment

'locks are also firm favourites with renters( *ots of lenders will not lend on flats in high rise 'locks,

articularly where the 'lock is council or housing3association owned( 6lways check to see how many

storeys a articular lender will consider(

When you 'ecome more confident in your a'ilities as a landlord you might want to consider urchasing

roerties that generate a higher yield 'ut that generally re8uire more time and understanding to run(

4igher yielding roerties are tyically harder to finance 'ecause they sit outside of mainstream 'uy3to3let

lending criteria( =ortunately there are half a doen lenders oerating via intermediaries that secialise in

this area(


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9roerties in this category include

5M6s 7student lets and multi-lets8

6 4ouse in Multile 0ccuation occurs where multile, unrelated tenants have e)clusive access to their

'edrooms 'ut share common living areas such as kitchen and 'athroom( ?his tye of accommodation is

commonly associated with students and rofessional sharers( ?he roerty can 'e let on either one

6ssured Shorthold ?enancy agreement or each tenant can have hisher own 6S? although most lenders

will take the former into consideration when making a lending decision(

Some 4M0s re8uire a licence from the local authority 'ased on the num'er of storeys andor the num'er

of eolehouseholds living in the roerty( ?hese roerties also have additional health and safety

regulations, so make sure you do your research 'ecause lenders will want roof that all the necessary

ermissions and licences are in lace( /unning an 4M0 Aregardless of whether it needs a licence is hard

work 'ut the financial rewards can make it worthwhile( 6ccording to the @# +% results of the Comle)Buy3to3let Inde) u'lished 'y Mortgages for Business, net yields on 4M0s currently average a whoing

#&(1 a( 6lso, void eriods have less of an imact on cash flow than vanilla roerties 'ecause rooms

can 'e rented searately(

Multi-9nit /ree!old Blocks

6 M!=B is a roerty with more than one indeendent residential unit owned under a single freehold title

such as a urose 'uilt 'lock of flats or houses converted into flats( ?hey have the following characteristics

J Each unit is let on its own 6S? agreement

J 9rivate areas that are the ersonal sace of each unit to which no one else has access

J Searate entrances for each unit

J Some have common areas such as hallways and gardens

*ike 4M0s, M!=Bs are oular with rofessional landlords 'ecause of the cash flow advantage comared

to vanilla roerties and the yields which tend to 'e higher( Currently the average net yield on a M!=B is

2(2 er year(

+emi-commercial %ro%erty

?hese roerties are tyically shos and offices with flats a'ove which means 'ecoming a commercial

landlord as well as a residential one( Currently yields on these roerties tyically generate K(+ er year(

=inally, if you are new to roerty investment, steer clear of roerties in need of renovation until you know

what you are doing unless of course you are in the 'uilding trade( Not only do these roerties re8uire

hard work 'ut you will have fewer 'uy3to3let mortgage oortunities( ;ou may even need 'ridging or

develoment finance and that.s another 'all ark( If you are unsure, ask a secialist 'uy3to3let mortgage

'roker for advice(


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;ou can do this 8uite easily using one of the online self3service lettings agencies( ?hey will also get your

roerty listed on the main classified ad sites such as


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)!e ongoing costs o* being a landlord

By ,avid !ittaker

Managing director o*

Mortgages *or Business

?here are severl roerty and tenant costs you need to consider 'efore investing in 'uy3to3let(

Insurance

Normal home and 'uildings insurance is not suita'le and you may find you are not covered if something

goes wrong( *andlord insurance generally includes 'uildings insurance, u'lic and roerty owner.s

lia'ility, accidental damage, re3housing of tenants in event of fire or flood and other cover deending uonthe olicy( ;ou may also want to consider insurance to cover secific aliances Ai(e( 'oiler, washing

machine, and loss of rent(

2icences

Some roerties such as houses in multile occuation re8uire a licence to oerate from the local authority(

In a few areas, such as Newham Borough, all roerties have to 'e licensed( ?he cost of a licence varies

enormously so do check with your local authority(

/urniture and *urnis!ings

6t the very least you may have ay for fi)tures, furnishings Acurtains erhas and ossi'ly some white

goods for unfurnished lets( ?he 8uality of furnishings could have a direct effect on the amount of rent you

can e)ect to receive(

/inding tenants

;ou can do this yourself or emloy the services of a letting agent who may charge you around #& of the

annual rent lus H6? which will include the cost of advertising your roerty( 4owever, they may charge you

e)tra for referencing, credit checks, inventory, check3incheck3out reort, and drawing u the tenancy

agreement(

6lways ask an agent for full disclosure on all costs so you don.t get any nasty surrises along the way( ;ou

can save a considera'le amount 'y doing this yourself our outsourcing certain arts 'ut it takes time and

re8uires careful management(

,e%osit %rotection

*andlords have a legal re8uirement to rotect their tenants. deosits using one of the government

authorised schemes( 9rices start from around :#1 for deosits of less than :1&& and :+& for deosits ofmore than :1&& and last for the term of the tenancy( Sho around 'ecause some roviders also charge

5oining fees(


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investing in buy-to-let

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