Buy To Let

Buy To Let investing has become increasingly popular in recent years, and due to the increasing number of buy to let mortgages now available, it is a more serious option for many more investors.

If you have an amount of cash available, even a small amount, that you are thinking about investing, it is worth considering investing in buy to let. You can use that money to buy, or partially buy with the help of a buy to let mortgage, a property and then rent out that property so that it will earn you passive income. Income that you have to do next to nothing to ‘earn’.

If you have perhaps £5,000 or £10,000 available, then you will probably need to gain money from elsewhere to fund the purchase or a property. You may be able to find others interested in either lending you money, or taking part in the investment yourself, but most likely you can raise the money by either re-mortgaging your own home to access the equity held in it, or take out a buy to let mortgage on the property itself. Many buy to let mortgages require a lower loan to value (LTV) ratio than standard mortgages, but there are 100% LTV so you can purchase the property solely using money from the mortgage. The amount you can borrow with buy to let mortgages is normally based on the expected income you will earn from rent, and it is often expected that you should be looking to earn around 120% of the monthly mortgage payment from the monthly rent you receive. For instance, if you were needing a mortgage with monthly repayments of £500, you would likely be needing to expect £600/month in rent.

One disadvantage with borrowing to buy a buy to let property is that the lender will sometimes stipulate which type of tenants you can take. Some lenders do not allow student letting.

So if you are still keen, how do you go about finding the right property for you? What should you be looking to pay, and how much can you expect to receive in rent. A good guideline to follow is to look for areas where you can expect to get 1% of a property’s value back each month. If the area you are looking at doesn’t look like it will be able to offer this type of return, then it is time to look elsewhere. It is good to speak to local letting agents and estate agents to get a guide to the local conditions, but always remember, they will have their own agenda.

If you are concerned about being unable to rent out any property you buy, it is generally accepted that a property will be empty for on average 1 month per year. Remember this is just an average though, and any individual case will depend on the local market for letting, and the price you charge for rent. So, when doing your planning, do remember to take into account the possibility that your property may lie empty for some time between tenants.