Tips on becoming a property investor
If you've recently sold a property, you may have made money from its capital growth. Essentially, that is a property investment. But you can also make an income from investing in property as long as you have the capital in place to start.
Parkers has put together the following guide for wannabe landlords, outlining everything you need to consider before embarking on a property investment journey.
How does property work as an investment?
There are two ways to make money from property: Capital growth and through rent. If you have recently sold your home and are now looking for an investment property to buy, you've already made money through capital growth. Now it could be time to take on the rental sector.
The benefit of this? As well as generating income from rent, in a sound market you should also make money from capital growth while the property is rented out. A win double!.
Okay, but what are the risks?
All investment, whether it be in stocks and shares or a business, is a venture with a degree of risk. Property is no different.
While the market in the past 10 years has shown considerable and steady growth, property prices do go down as well, as we saw in 2008. Potential landlords need to consider this when pondering their investment opportunities.
An interest rate hike can also put the brakes on a successful property income. If your mortgage payments creep up above what you are receiving in rent, you'll be running at a loss.
What costs am I facing?
The bulk of your costs in purchasing a buy-to-let would be similar to purchasing a property to live in. You'll be looking at estate agent bills, conveyancing and stamp duty among your costs for starters.
But the main difference between an investment property and a dwelling is in the additional 3% stamp duty charge for second homes or buy-to-let properties. And although mortgage interest in buy-to-let properties could traditionally be deducted from a landlord's profit prior to income tax, from 2020 this will no longer be possible, increasing many landlords' tax bills.
And running costs?
If you have decided that purchasing a buy-to-let property is the route you want to take then calculating your rental yield will be crucial.
To do that, you'll need to factor in the day-to-day costs of operating a successful investment property. These will almost certainly include:
- Mortgage interest
- Letting agent fees
- Decorating costs
- Landlord insurance
- Safety checks
- Maintenance bills
What legal requirements do I have to abide by?
Tenant safety is everything when it comes to buy-to-let properties. As a landlord, you are responsible for the safety of the people living in your property, first and foremost.
- Smoke alarms must be installed on all floors
- Carbon monoxide detectors must be present in rooms with coal fires or wood-burning stoves
- Each gas appliance must have its own safety certificate available inside the property
- Electrical devices should be PAT tested for compliance
- Furniture must be fire safe and all labels on display
- The water supply must be safe to protect tenants from Legionella bacteria
An Energy Performance Certificate (EPC) must also be provided prior to letting our your buy-to-let property.
Legislation introduced earlier this year also insists that all rental properties have an EPC rating no lower than E.
What other responsibilities do I have?
Your tenant's deposit must be registered with a deposit protection scheme backed by the UK government and, aside from any disputes regarding damage or unpaid rent, this must be returned to the tenant at the end of the agreement.
In terms of maintenance, you are responsible for the exterior of your property, namely the roof, walls and outside structure. So, if there is a problem, you are obligated to fix it.
On top of that, you must ensure that water, gas and electric supplies are safe and well maintained.
What if I want to check the property?
You have the right to access you buy-to-let property as the landlord. However, you must not impact on your tenant's right to 'quiet enjoyment'. With that in mind, you must give notice if you wish to visit.
Twenty-four hours is usually sufficient, but some tenancy agreements will vary.
Tell me about HMOs
HMOs, or Houses in Multiple Occupation to use their full name, are buy-to-let properties with three or more individual tenants living inside and sharing bathroom, kitchen and toilet facilities.
HMOs can be sound investments due to their multiple streams of income from each tenant. If one tenant leaves, you still have rent coming in from the others while you search for a replacement tenant.
Do HMOs have other rules and regulations
'Large HMOs', which boast five or more individual tenants and are at least three storeys, require a licence to operate.
On top of that, you must ensure as a landlord that the property is not overcrowded and that communal facilities are of a good standard for multiple occupation.
As well as abiding by all other legal requirements regarding buy-to-let investments, you must also ensure the HMO's electrics are checked every five years.
If you have any questions on letting out your property, feel free to contact your local Parkers branch who will be happy to help.
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