How To Make Money From Buy to Let
So, how to make money from Buy to Let. Buy to Let mortgages have seen a sudden surge in recent years. Rental properties have been in demand more than ever, due to many people having to rent until they can afford to buy. With ever increasing rent, and house prices constantly climbing, people have identified that by investing in Buy to Let property they can source a steady income and use it as an alternative to a state pension.
But is there really money to be made from Buy to Let? In short, yes. However, it’s important to understand that it requires a lot of time and effort to do so. There’s also a lot of other things to consider. Let’s find out how to make money from Buy to Let…
Timing is everything
House prices over the last few decades have fluctuated a lot. You need to ask yourself if the market is at its peak, heading towards a peak, falling or stable…and then make an informed decision. You could try to seek advice about what sorts of properties rent well in your area and what rental income you could expect to receive. Try www.propertychecklist.co.uk as a free way of securing more information about the market.
If you happened to buy property between 2006 and 2007, you will typically have seen a decline of up to 25% or more in the value of your property. Thus, effecting the chances of ever making any real money from it because the small amount you make on the rental income will be swallowed by the loss of the new property value. Therefore, it could take a very long time to see any benefits.
Choosing the correct property
Firstly, you must determine what your intentions are for your Buy to Let property. Is it capital growth you are relying on? Houses in London, for example, are a great example of this. Opting to capitalise on the value of the property rising, with a view to eventually selling it on, rather than aiming to make money on the rental yield, is a sure-fire way of making some money. Whereas, a large house in the north of England which could be used as student accommodation, could prove a lucrative rental yield.
Once you’ve determined the sort of Buy to Let property you desire, you’ll be one step closer to investment. Typically, choosing a Buy to Let property in an area you are familiar with, or local to, is beneficial. Not only because you’ll be close by, should anything occur, but because of your better understanding of the areas, it’s issues, advantages and upcoming plans for infrastructure and transports, for instance.
The final piece of advice here is to compare several property types and their price, rents and initial layout costs, to be able to appreciate the financial returns.
Sticking to your numbers
When looking at Buy to Let properties, have a number in your head you’re willing to pay for a property, what the rental yield is and how soon you can see a return. And stick to it. Do not be swayed by strategically placed plant pots in a pretty garden or a meandering view, as these factors will not necessarily improve the amount of rent you can charge, despite lifting the property value. However, an ‘outstanding’ nearby school, if you’re looking at family houses, may.
If you miscalculate even in the slightest, it can be a costly knock on effect. So, make sure you crunch the numbers and stick to your original plan.
Managing your investment
A Buy to Let venture will require attention and frequent management. It’s not something you can leave alone and reap the rewards form.
Even if you’re tempted by the idea of cutting out letting or agent fees and managing the property yourself, there is much you need to know as a landlord. There are hundreds of pieces of legislation that are ever-changing and if you’re not on top of it, you can be prosecuted. Even for something as trivial as damp in your property. There are talks of landlords conducting immigration checks too. If this sounds like it could all be too much to manage, we suggest speaking to a letting agent and utilizing their expertise.
Get out clause
It’s advisable to head into any Buy to Let project with an exit plan. From the moment you invest, you should’ve calculated what you want to get out of the project and how long it will take. Whether it’s capital gains you’re looking for or as nest egg, there must be considerations surrounding the market and unforeseen circumstances.
If you have more than one Buy to Let property, your exit strategy may be determined by the taxation. People in this situation develop a yearly exit plan, to take advantage of tax breaks.
Dealing with Buy to Let mortgages and properties naturally come with risks. The unpredictable housing market being the most obvious one of them but you must also consider any potential problems with a property such as: paying to fix or furnish it; keeping on top of the loan repayments if you acquire problematic tenants who refuse to pay the rent or being open to scrutiny and penalties, as a landlord.
There are a few ways of how to make money from Buy to Let. With a property market on the up, your rental yield could see high returns of up to 12 to 15% , in some circumstances, leaving you a commendable profit. A good yield is that of about 6 to 8%. For instance, if your property value is £150,000 and you’re charging £750 per month for rent, your yield will be around 6%.
This is calculated against other costs such as the size of your deposit, arrangement fees and typical maintenance costs of running a property. Leaving you an average net profit. Basically, just because you’re receiving £750 per month against your mortgage repayments of £395, doesn’t mean you’re making £355 profit each month or £4,260 annually. Instead, rental yield is your rental income expressed as a percentage against the value of the property.
So, can you make money from Buy to Let?
Yes. Although it’s not as easy as many people assume. It requires real research and meticulous management to be successful.
MortgageKey can help you to achieve your Buy to Let dream by supplying award winning Buy to Let mortgage deals which get you a step closer to becoming a property tycoon. If you want to know how you can benefit from a Buy to Let mortgage, get in touch with one of our expert advisors or visit our Buy to Let page for more details.