If you're interested in investing in property you'll need to study the form first. Paula John, Editor of Your Mortgage magazine, gives some tips on how to become a successful landlord
Returns on buy-to-let property can be very attractive. But there is a lot more to being a landlord than sitting back and waiting for the cheques to roll in every month. In fact if you don't do your homework, investing in property could end up costing you money rather than earning it. So before you undertake this type of investment there are number of things that you need to consider.
Choose carefully
Make sure the property you buy is in an area that is well suited to letting. Your property will be easier to rent out if it is near a large city and is close to local amenities with good transport links. Consult local estate agents and letting agents to determine the supply and demand of rental properties in the area. Advertisements in local newspapers will also give you an idea of how much rent you can expect to receive.
Do your sums
Never underestimate the initial cost of investing in property. Most lenders will only allow you to borrow 80 per cent of the value of the property you want so you'll need to fund a substantial deposit as well as solicitors' fees and other home buying expenses. Most lenders will require your expected rental income to equal at least 125 per cent of the monthly mortgage payment so it's vital that you do your sums first. It is also your responsibility to pay for the maintenance of the property. Furthermore, most lenders recommend that you put some money aside in case something unexpected happens. If there is ever a period where you are between tenants, stop receiving rental income, lose your job or the tenants from hell have set fire to your house, you'll be glad you did.
A landlord's life for you?
Investing in property may not be a stroll in the park – but the more preparation you do before you start out the more likely it will be that your investment will yield financial rewards later. However, remember that any profit you make when you sell the property will be subject to Capital Gains Tax (CGT), which is charged at the highest rate of income tax. (To reduce your costs UCB Home Loans recommends putting the property in joint names to make the most of two personal tax allowances.) You also pay tax on your rental income although mortgage payments are tax deductible. Of course, property prices can go down as well as up but John Crossley, head of mortgages and lettings at Bradford & Bingley, believes that potential landlords shouldn't be too concerned about any short-term slowdown in the housing market. He says: ‘Buy-to-let is a long-term investment and over a period of 10-15 years you would expect the property you had bought to rise considerably in value. If prices do slip a little, now could actually be a good time to enter the buy-to-let market.’