Understanding Buy to Let

Buy to let is exactly how it sounds; you buy a property to then rent it out to tenants. Doing this is an excellent medium to long term investment and can be a great source of continuous income.

In this blog, we explain what a buy to let investment is, whether it is the right option for you and how you can go about starting one for yourself.

What is a Buy to Let Investment?

A buy to let investment is where you purchase a property to then rent it out. You can buy the property by either using your own money or by taking out a buy to let mortgage.

Who Can Get a Buy to Let Mortgage?

Unfortunately, not everyone is entitled to apply for a buy to let mortgage. If you fall into any of the following categories, then you can apply:

• You can afford to cover the risks of investing in property.
• You already own a home; either outright or with an outstanding mortgage.
• Please note: it is technically possible to get a buy to let mortgage as a first-time buyer, but it is incredibly difficult. You will need a higher deposit than if you already had a property and you will miss out on the benefits of buying your first home to live in, such as lower stamp duty.
• You have a good credit record (not too stretched on other borrowings). 
• You earn more than £25,000 a year. If you earn less, you may find it a challenge to get approval from a lender. 
• You will be below the age of 70 to 75 (depending on the lender) when the mortgage ends. For example, if you are 40 years old when you take out a 25 year buy to let mortgage, then you will be 65 years old when it ends, which is below the age limit. 

Things to Take into Consideration When Considering a Buy to Let Investment

When taking out a buy to let mortgage, you should take into consideration the risks.

• You cannot always guarantee you will be able to find tenants. To give yourself the best shot, take a look at our list of things renters love!
• If your tenants decide to leave, for whatever reason, no rent will be coming in, but you will still be required to pay the mortgage repayments.
• Should you decide to sell the property, then the sale price may drop and no longer cover the cost of the mortgage.
• The amount of money you can charge for rent will vary depending on factors such as market trends, so no sum is guaranteed.
• You could be unfortunate and come across some difficult tenants. If this is the case, they could cost you more money than you initially planned. For more information on how to deal with tricky tenants, read our previous blog.

How Do You Earn Profit with A Buy to Let Investment?

Once the property is bought, you can earn a profit in two ways; rental yield and capital growth.

Rental Yield

What your tenants pay in rent, minus any maintenance costs, e.g. repairs, agency fees.

Capital Growth

The profits you earn when you sell the property if it is more than you originally paid for it.

How Secure are Buy to Let Investments?

As a general rule, investing in property is always seen as an excellent asset. If you would like some peace of mind and protect you and your investment, consider taking out landlord insurance.

What Is Landlord Insurance?

While it isn’t legally required, some lenders make it a requirement to take out landlord insurance if you are requesting a buy to let mortgage. Landlord insurance can significantly help in protecting both you and your investment. Policies can include multiple features, such as accidental damage cover, financial protection against loss of rent and buildings insurance.

Learn More About Becoming a Landlord

If you are interested in the buy to let scheme and would like to become a landlord, please refer to our previous blog where we share our expert advice for landlords by answering some frequently asked questions.

Here at Godfrey, Short and Squire, we are an estate agent based in Okehampton. With homes for sale in homes for sale in North Tawton and West Devon, we could have the perfect home for you to start your buy to let investment!

If you would like some more information or just a chat about your current situation, please do not hesitate to get in contact with our friendly team. Give us a call on 01837 54504 or visit our contact page.