Real estate has always been a promising field for the investors, and despite the risk, it never loses its charm. Buy-to-let properties are among the most sought-after options to get a higher return on the investment. The only thing that one needs to take care of is the accuracy of the investment decisions. How one can know if they are accurate or not?
Several tips can throw light on how to make smart investment decisions while buying a buy-to-let property.
Find the right type of property
Your money goes in the dustbin if you do not know what type of property is suitable and how to find it. The property market is vast and full of opportunities; you need to be at the right place at the right time.
Here is how to find a suitable property –
- Your budget limits – Practical approach says that you should always keep in mind the limits of your budget. However, you can also extend your risk limits but not beyond a specific limit. It is never wise to put all or most of the money in just one thing. It leaves you, dependant, on only one option, which is never a safe thing for an investor.
- Location – The money multiplies instantly with the correct location because people are ready to pay high rent for a good location. Make a list of the right locations, meet the local agents, explore the internet and find a good match of location in your budget.
- Give preference to new over old – An old building always demands a significant amount in the name of maintenance. Also, such properties act difficult on the part of the mortgage. Try to buy the newly constructed ready-to-move-in houses.
- Type of building – Flats have different capacity to offer the return on money, and the independent houses have different calibre. In city areas, flats are more beneficial, and in the outskirts where people seek for bigger spaces, buying a house for investment is a lucrative thing.
- Eco-friendly surroundings – People nowadays are cautious about their carbon footprint and prefer eco-friendly housing. It is, in fact, an excellent feature for the property sellers and investors to present to the customers and buyers. You need to focus on this point while making the buying decision.
Small precaution tips, as mentioned above, can make a big difference in the investment profits you expect to make.
Do not forget to count the challenges
Investment is not a fairy tale where you put money, and it will double with magic. No, you have to go through certain conditions and challenges.
Here are the prime challenges that come with buy to let house investments.
- The current rule of mortgage tax relief – As you know, from April 2020 the landlords are not allowed to deduct their mortgage interest payments from the rental income. Only 20% credit on the mortgage interest is possible now.
- The capital gain tax calculation – If a landlord sells its buy-to-let house, he needs to deduct the CGT from the whole profit he makes through the sale of the property. The CGT amount has a considerable size. For high taxpayers, it is 28%, and for low taxpayers, it is 18%, you can understand what does that mean.
- Strict mortgage criteria – The mortgages for an investment house that falls under the category of commercial mortgages from an Online Broker are never easy to obtain. The rental capacity of the house should be a minimum of 125% of the monthly interest payment of the loan. Some lenders ask for the 140 or 145%. The affordability rules are stringent, and you have to make intense efforts.
- Stick to rules and regulations – As a landlord, you have to follow sundry rules, and there is no space for compromise on that part. Provide energy-efficient houses, ensure annual safety checks, and so much more.
Your investment plans need to be programmed according to such challenges because there is no other option. Carelessness only causes loss.
Work on the methods that maximise buy-to-let profits
While you invest, also pay attention to several methods that can improve the chances of profit. It naturally reduces the possibilities of loss.
Here are some tips for this purpose –
- Join the market when it is weaker – When the market is down, buying the property is easier because the prices are low. However, at the same time, the issues of lower LTV and the higher deposit may also confront. Even then, it is beneficial because, in a high rate market, both aspects will be even more problematic. The higher prices enlarge the gap between the LTV and the property value, and technically a higher price also increases the deposit amount.
- Seek professional advice – ‘Investment’ is not just a word but a COMPLETE INDUSTRY that demands perfection and expertise. The investors create their risk profile and explore the possibilities of the market with the help of a professional. For a safe play strategy, you should do the same with the right type of assistance.
- Find out the possibility of the change of use – A perfect example of this can be the current property market after covid-19. Many investors who are in a significant loss after corona are seeking the option of property transformation. For example, many landlords are trying to turn their buy-to-let house into a serviced accommodation. The latter does not have tenants but temporary guests. Before you buy a house through buy-to-let, make sure that it has the change of use possibility.
The above simple points can help you earn a more considerable amount on your property as the landlord.
Investment in a buy-to-let property is profitable, but only if you have seen in all the directions. Make practical calculations of profit and loss and check your capacity of taking the risk. Cautious steps always lead to a successful destination.