mortgages

Updated : Sep 18, 2020 Finance

Investment Advice for Buy-to-let Property

Buy-to-let mortgages are different from residential mortgages. As the name suggests, these mortgages target people who want to buy property as an investment rather than as a place to live in. Getting a buy-to-let mortgage is not as easy as a residential mortgage. You will have to understand the risk of investing in property.

Apart from owning a home whether outright or with an outstanding mortgage, you need to have a good credit rating. Your annual earning must be above £25,000, otherwise your lender will likely turn down your application. Buy-to-let mortgages work carry higher interest rate than residential mortgages and ask for at least 25% of the deposit size.

However, it can go up to 40%. Buy-to-let mortgages are interest-only mortgages, which means you will pay only interest each month. At the end of the mortgage term, you will pay the capital amount. The aim of categorizing them as an interest-only mortgage is to help you make payments from the rent you earn ever month. If you are looking for the best buy to let mortgage, you should remember the following tips:

Research the market

Be cautious if you are new to buy-to-let investments. You should know all benefits and drawbacks. Note that it is a type of investment. Your money will likely perform better elsewhere. Even though property investment is a great way to build wealth, the value might drop down because of market uncertainty.

Buy-to-let property investment means tying thousands of pounds to a property. Make sure that you are investing money in a property that is in a favourable location. Sometimes, people struggle to rent out the property because of the location.

It is always suggested to ask people about their experience if they have bought buy-to-let mortgages. Make sure that the location you choose for your property has all facilities. You will have to match the property you want to buy with the location that people would want to live in.

Most of the time, people tend to invest in property nearby because they better know about the market than elsewhere. You will have a chance to keep tabs on the mortgage.

Think about your target tenant

Buy-to-let mortgages are more expensive than residential mortgages. Further, they are not subject to FCA regulation, so interest rates are likely to be very high. If you are not careful with your investment, you will end up blocking all of your money in an empty property.

You need to shop around from a buyer’s point of view. Think about what they want and need and if it is easy to live in that particular property or location for them. For instance, if you want to rent out the property to students, it needs to be comfortable and clean but not luxurious.

However, if you are looking to rent it a family, it should have enough room to store all belongings. It is crucial to keep the needs of your tenants while renting your property.

Look further afield

Although it seems good to invest in property near you as you can keep tabs on your property, it might not be a good idea if that location is not that suitable from tenants’ point of view.

Therefore, you should consider other towns and cities. Appoint a manager who will take care of your property. As far as it is about looking for property in a particular city or town, make sure that it has all facilities. It must have shopping complexes, malls and medical facilities.

Do up your property

It is also worth noting that the property you are investing in is a better condition. Worn out property are very hard to negotiate for a better price. So if you invest in a property that requires renovation, it can add value leading to a capital gain when you sell it.

Some investors shift their current mortgage from one property to another by having a significant gain in the capital. So, try to add value to your home by refurbishing the building.

Haggle over prices

When it comes to buying property, they are overpriced frequently. Make sure that you haggle over prices. Of course, nobody would sell you lower than the market price, but you should be careful because the seller could demand more than the market price. Knowing the market condition while negotiating can pay you off.

For instance, when the market is doom, you can negotiate for a lower price. If the seller has been owning the house for a longer period and looking to cash in, they would be willing to offer the property for a lower price. This is why you should know how long someone owns that property and why they are selling out.

However, getting the property at a lower rate does not guarantee that you can make a significant amount of profits down the road. The property prices fluctuate. Contrary to your expectations, the price may fall later. There is no point of investing if you do not have enough funds to overhaul your property. Houses undergo repairs frequently, and sometimes they can be major. Make sure that you have enough money to carry it out.

Buying a buy-to-let mortgage can be a tricky process. Make sure that you have researched beforehand properly.

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