The benefits to purchasing BTL property

The pros to purchasing a buy to let property!

Following on from my post last week I have decided to delve into the positives on owning a buy to let property and a list of pros:

First things first what is a buy-to-let mortgage?

Buy-to-let mortgages are for people who want to purchase a property as an investment, rather than as a place to live themselves.

So why do people do this…..

Investing in property can be a great way to generate a steady income and build wealth over time. By buying a buy to let property, you can benefit from rental income, capital growth and tax advantages.

Property investment is one of the most popular forms of investment due to its potential for long-term returns and stability. With careful planning, you can use your buy to let property to build up your financial security and enjoy the benefits that come with being a landlord and in my opinion there are many.

In this blog, we will discuss the various benefits of investing in a buy to let property, why someone may wish to invest in property and how it can help them achieve their financial goals.

Buy to let property investing is a great way to increase your income and build wealth over time. It can be a great investment opportunity for those who are looking for an alternative source of income.

Investing in buy to let properties can provide you with a steady stream of “passive income” with careful research and planning, buying a buy to let property can be an excellent way to build financial security for yourself in the long term.

Even if you already own a range of investments, purchasing a property is a great way to diversify your portfolio and reduce risk. With careful research and planning, you can find an investment that fits your budget and goals.

There is a huge demand for rental properties that is ever increasing. The rising prices of property and the difficulty in getting mortgages makes renting an attractive option for many people. With this strong demand for rental properties, it gives property owners the potential to make good returns on their investments by providing quality housing and services to tenants.

However, before you take the plunge, there are several important factors to consider. From researching the local market and finding the right property, to understanding landlord laws and regulations, there’s a lot to think about and it can become daunting. It is important to budget for your investment, understand tax implications and how to find suitable tenants. 

As you can see there are some great benefits that come with purchasing a buy-to-let property investment, it can benefit your life massively however there are lots of things to consider before taking the plunge.

Responsibility

Being a landlord comes with lots of added responsibilities, something I originally took quite naively back in 2018!

There are a lot of legalities that you need to be aware of and you need to stay compliant with lettings legislation. There is a lot to this and it changes frequently. Just as you think you know it, it changes so you need to be on the ball or instruct a letting agent who can do most of this for you although you’ll pay a fee for that service, you’ll benefit from the peace of mind that all your compliance obligations are taken care of.

Additional costs

It’s not just about making profit and it isn’t always plain sailing – there are a number of outgoing costs you’ll need to consider and fact in.

Maintenance costs, just like in any home there is always going to be regular maintenance needed. Therefore you need to always be aware of this and have an emergency fund at the ready at any time.

Another cost to think about is that as a buy-to-let investor, you’ll pay an additional 3% stamp duty charge. Something I have had to pay through gritted teeth.

You’ll also have to factor in income tax on any profit you make from the rent you are earning, with this you need to look at your current taxes, will this become an additional income? It is best to speak to an accountant regarding this. We use Williamson & Croft who I highly recommend.

VOIDS! You need to remember that your property may not be rented out 365 days of the year all of the time, it is just one of the realities of owning a BTL.

Finding tenants

As I mentioned earlier the rental market has a high demand and finding a tenant shouldn’t be hard.

Finding good tenants does require time and paitence, applicants will have to go thorough referencing, background checks and a credit check. Again a letting agent can do this for you and already has the resources and expertise. This is a vital part of the process and you don’t want to rush or skip any of this – trust me.

With the current market is it still a good idea to buy a BTL?

There is more legislation than ever before but in my opinion as a strategy it remains a safe space to invest which I don’t believe can ever be knocked.

Rental demand in the UK also remains high in the wake of the Covid-19 pandemic. We actually saw a COVID boom and the property market didn’t crash as it was predicted. This is a good example to show you that you can never predict the market and that there is never a right time to invest in property.

High interest rates which are currently soaring and as of now April 2023 the Bank of England base rate is 4.25% this is a bummer there is no denying that and it has made purchasing a BTL harder and also not a lucrative as it was this time last year but saying that lenders are still competing, so landlords investing in buy-to-let properties still have multiple options to find something that works for them.

How do buy-to-let mortgages work?

Many buy-to-let mortgages are interest-only. It is a completely different market to the usual residential mortgages.

Interest only mortgages mean that you only pay the interest on the loan each month, you don’t actually pay back any of the property price unlike a repayment mortgage.

With an interest only mortgage you pay the remaining debt at the end of the mortgage term but if you aren’t ready to pay off the remaining debt at the end of the mortgage term then you can decide to refinance the property.

What deposit do I need?

Unfortunately it is not the usual 10% that is required for a residential property. Most lenders will require you to put down a minimum deposit of 25% of the property’s value which can be a lot of money. 

The higher percentage deposit you can offer, the better deal you will be able to get. Additionally the smaller amount you borrow the less your monthly repayments are.

How much can you borrow for a buy-to-let mortgage?

The amount you can borrow does NOT depend on how much you earn.

Instead of looking at your income mortgage lenders will look at how much rent you’ll be able to achieve.

To get a good idea of how much rent you’ll be able to charge, talk to a letting agent and get a feel of what else is on he market.

I hope this has helped you with gaining a better understanding on the benefits of purchasing a buy-to-let property investment and has maybe inspired you to get one of your own.

Thank you for reading.

Bye for now Xxx