Introductory Guide to Buy to Let
7th August 2017
7th August 2017
The James Sellicks Lettings Team is regularly asked advice about what makes an ideal rental property.
People see that investing in property has paid dividends for many individuals, both in terms of income and capital growth and want a slice of the cake; however, it is essential that you go into it with your eyes wide open, acknowledging the potential advantages and pitfalls.
Legislation for landlords is constantly changing and taking advice from a reputable and trusted source is vital to help mitigate potential risks and find the best property in the right location.
In our experience a 2/3 bedroom semi detached/terraced house - ideally no more than 10 years old in a well established neighbourhood, is always rentable, providing there are good transport links and easy access to local employers and amenities i.e. business parks, hospitals, universities, shops and well rated schools.
Firstly you must consider how you are going to fund the purchase. As a rule, buy-to-let mortgage rates tend to be more expensive than residential loans and you will need to put down a deposit of at least 25% of the purchase price. To get a more competitive rate, you’ll need 40% or more.Obviously if you’re lucky enough to be a cash buyer or already own the house it’s a different scenario..!
Look at it as a long term investment and aim for a good rental yield. As a basic example, as a cash buyer you purchase a property for £125,000 - say it rents for £550 pcm/£6,600 per annum. You divide £125,000 by £6,600, which gives you a rental yield of 5.28%.
However, you also need to consider the cost of buying the property to include stamp duty, solicitors’ fees, insurance, letting agency fees and, for leasehold properties, service charges and ground rent. Also factor in any initial upgrades needed, on-going maintenance costs and potential void periods between tenants.
Buy to let is treated as an investment so is subject to income tax on rent and capital gains tax on sale. You will also pay Stamp Duty of 3% on the first £125,000 and 5% on the portion up to £250,000, as it is not your main residence but an additional property.
That’s the serious stuff now the best part – looking for the right property! Always consider the demographic of the tenant you are looking to attract and put yourself in any prospective tenant’s shoes by asking yourself - "Would I live here"...?
Kerb appeal of a property is important. Most people concentrate on the inside of the property but if the front looks drab and unwelcoming put some thought into how this can be improved - a lick of paint makes a house look cared for. If there is garden to the front of the property you could consider adding off road parking.
In high traffic areas such as entrance hallways, kitchens and bathrooms a good quality laminate is always best. For the rest of the property consider dark, neutral coloured carpets only! Good underlay makes a cheap carpet feel thicker.
Ideally in white, magnolia or very light grey. When it comes to bathrooms and kitchens always use water-resistant eggshell or acrylic paint.
Every property should have a shower - properties with just a bath are harder to find tenants for. Ideally install a shower over the bath, preferably an electric shower which is not dependent on a boiler. In our experience shower trays tend to leak more than baths. A separate WC downstairs is always a bonus.
A well laid out kitchen is essential. It is always worth looking into replacing cupboard doors and putting in new work surfaces if the overall appearance is dated. Avoid integrated appliances as they are difficult to access if they go wrong and need repair or replacement and are often more expensive to repair/replace too.
Try to make them as maintenance free as possible - paving slabs work best - decking can be very slippery in the wet and will eventually start to deteriorate. Lawns need maintaining and a lot of tenants struggle to keep on top of them through the summer months.
Before viewing a property always check the Energy Performance Certificate to get an indication of the energy efficiency of the property and potential running costs. Full double glazing and good insulation is vital.
From April 2018, new legislation is coming into effect for EPCs in rented properties. If a property is not in Band E or above, it will be illegal to rent it out when the tenancy changes. In 2020 this will update to any properties including long-term agreements.
A reasonably new combi boiler with service/maintenance records is important. Electric storage heaters can be expensive to run.
Whilst it is not a legal requirement (yet) if you have any doubts about the electrics at a property have an Electrical Safety Check carried out. It’s a small price to pay for your own peace of mind and your tenant’s safety.
Smoke alarms, carbon monoxide monitors and heat detectors are legal requirement in rental properties.
This would largely depend on the demographic of tenant you are aiming for. Remember - the more you provide for a tenant the more you are responsible for!
It goes without saying that a thorough deep clean throughout is essential to make the property as appealing as possible.