From cash flow to reserve funds, what the buy-to-let landlord needs to know
A buy-to-let investment could be the asset that finances the lifestyle you desire. For many property investors, the passive income it can produce has enabled them to work fewer hours and enjoy more time away from the grindstone. But to be successful, you must be prepared and plan your life as a buy-to-let investor. Here are 11 tips to help you profit in property investment.
1. Make sure you work out your cash flow
Make sure that you know the financial viability of each buy-to-let opportunity before investing. You must be sure that the rent will cover the cost of the mortgage interest and other associated costs.
If the rent does not cover these costs, you will need to subsidise your investment from your own pocket. This doesn’t mean the investment is a poor one – remember that capital gain is a valuable part of the return on buy-to-let investment property. However, lenders must be convinced that you can afford your investment to offer you attractive mortgage terms.
2. Get the best mortgage offer
The buy-to-let mortgage market is different to the mortgage market for homebuyers. Though there are thousands of mortgage products available for investors, most of the best mortgages are offered by specialist lenders.
Buy-to-let mortgages are assessed with reference to rental income, and most lenders will need the rent to cover the mortgage interest by at least 125%. The deposit you’ll need is likely to be at least 25%, too.
The best strategy to use to get the mortgage you need to invest in a buy-to-let property is to use a mortgage broker with experience in the buy-to-let market.
3. Target your ideal tenant
Many first-time buy-to-let landlords make the mistake of preparing their property as if it were to be their own home. You must think about your ideal tenant, and target them with the suitable furnishings, fixtures and fittings.
Stop thinking as yourself, and start thinking like your ideal tenant. For example:
- Students want clean and functional, with high-speed broadband
- Families want a garden and plenty of storage space
- Young professionals want modern kitchens and clean lines
(Want to know the tenants you don’t want? Read our article “5 tenant types every landlord should avoid”)
4. Always vet the tenant
If you don’t vet the tenant properly, you increase the risk of getting a tenant from hell. You must:
- Check references from current and previous landlords
- Check references from current and previous employers
- Check the tenant’s credit rating
5. Consider if you want to be a landlord
You must know how you plan to manage the property. If you manage it yourself, you will need to:
- Collect rent
- Chase late payments
- Handle tenant requests, queries, and complaints
- Arrange maintenance and repairs
- Advertise and market the property
- Conduct property inspections and maintain a property inventory
6. Be prepared for unexpected calls 24/7
Being a DIY landlord is not a nine-to-five job. You might escape the rat race, but you’ll replace corporate stress with tenant stress. Just when you’re settling in for a relaxing weekend is the time your tenant will phone to complain about a leaking boiler.
Prepare for your life to be interrupted at all hours, seven days a week.
7. Build yourself a comprehensive list of contacts
To ensure that all your tenant’s maintenance issues are dealt with properly, you’ll need to have a list of tradespeople to hand. You must do your research, and find good, reliable people who are happy to have you as their client, and who won’t overcharge because you’re a landlord.
Once you’ve found good people, you must keep hold of them – and that means working on your personal (and professional) relationship skills.
8. Love the landlord law
Landlord laws change constantly. Be prepared to spend time keeping on top of all the changes. If something goes wrong, being ignorant of the law is no excuse. One mistake could cost you thousands in fines.
9. Consider professional investment property management
If you don’t want the hassle of vetting tenants, being at the beck and call and managing maintenance needs of your property, you should consider hiring a professional investment property manager to do all the work for you.
They will also keep on top of all the law and regulatory changes, ensure the property is inspected regularly, and maintain good relations with your tenants. They will have systems in place to manage tenant calls and maintenance needs. They’ll sort out all the tenancy agreements and other paperwork, and make sure that the tenant deposit is handled correctly.
10. Buy landlord insurance
Whether you use an investment property manager or not, you should invest in landlord insurance. This will give you extra peace of mind and can include cover for unpaid rent as well as essential public liability insurance.
11. Maintain a reserve fund for your buy-to-let property
Finally, whatever you plan for, the unexpected always happens. Usually when you can least afford it. To mitigate this, maintain a reserve fund for all emergencies. Don’t be tempted to dip into it, unless needed. Remember, this is an added protection for your buy-to-let business.
Live with passion,