Buy to Let Mortgage Guide
Location of property
Purchasing a property close to where you live is kinder on the
administrative and management side of the project: you won't have to
travel every time a problem appears.
Rental Income
Always remember that rents can fall as well as rise, so your
projections for income must err on the side of caution. It is
probably best to deduct two months income from your annual total to
get an indication of what you are likely to earn.
Costs
Nationwide, annual rental yields average out at around eight or
nine per cent of the value of the property. However, that is the
gross figure. For a true indication of your income you will need to
deduct maintenance costs, insurance, tax and agents' fees. Costs
Letting agents
You may want to consider employing a letting agent who will
perform some of the associated and time-consuming tasks of
buy-to-let such as:
- legal paperwork
- finding tenants
- repairs and tenant issues
Letting agents do charge significant sums in yearly management fees
to perform this work (and up to 10% of rent). Letting agents
Pension alternative
One of the reasons why interest in property has grown is that
pensions are increasingly being seen as offering poor value.
The fact that pensioners are forced to buy an annuity and that
they cannot pass proceeds on as inheritance is prompting some to
look for alternatives.
Property can appear far more flexible and has
recently been outperforming the stock market. But owning a property
that is rented out can also cause tax problems.
If you sell it, you
could be liable to capital gains tax. There are ways around this -
for example, if you live in the property for several months before
selling it.
Know, too, that this is not guaranteed - as the Inland
Revenue assesses each case individually. If you leave it to family
on your death, they may have to pay inheritance tax.
If you are unsure of your liabilities, it is essential to take
advice. Many new landlords also need advice on what they can offset
against tax, and this includes repairs (but not improvements) and
costs such as letting agents and insurance.
Insurance
Many insurance providers offer special buy-to-let policies which
offer a more comprehensive policy that standard rented property
insurance packages. Ensuring your tenants also have contents
insurance may be another way of reducing policy values.
It's never easy to estimate how much you can make from a
buy-to-let investment. The average figure bandied around is in the
region of 12% a year, but with costs deducted, this can come down to
around 7%.
Overview
of buy to let mortgages |
