While the current housing market is proving tough for homeowners at the moment, the Royal Institution of Chartered Surveyors (RICS) suggests that the continued fall of house prices, and availability of commercial mortgages is likely to encourage more people to invest in property. With predictions suggesting house prices will fall by as much as 2 per cent by the end of 2011, more are taking advantage of cheaper property and looking into entering the buy to let market.
At the end of the day, it pays to look at the long term in regards to investment in property. While housing prices are low now, they can only grow in the long term, which means that your property will gain positive equity.
Naturally, investing in property isn’t necessarily everyone’s cup of tea. There is a lot of financial planning and organisation to be done in order for the investment to be worthwhile. Additionally, you have to be able to afford it in the first place, for example you will usually need an initial deposit of 25%, not to mention any renovation and maintenance costs which may be necessary in order to make the property liveable. Then there’s letting agent fees, landlord insurance and legal fees to consider. Investing in property is certainly not a decision to take lightly.
However, for others, investing in property can prove to be an extremely profitable second stream of income. Providing of course that the initial payments can be met and the property is classed as liveable in accordance with health and safety at the time you put it up for let. Understandably, lenders are much more restrictive in today’s housing market, and so more and more people have been driven to rent.
When looking at your Buy to Let options, it’s crucial to work out your projected rental yield – this will let you know whether the proposition you’re looking at is worthwhile or not. You need to work out your total initial outlay, how much you expect to take in from rent payments, and what your ongoing expenditure will consist of.
To establish the exact figures and whether or not it will be a sensible investment, there are various estimates you must make. The most important is to subtract the total annual costs, for example, mortgage repayments and letting fees, from your total projected annual rental income (subtracting 5% for periods in which the property may be untenanted). You must then divide this sum by the total initial costs, for example, the deposit, mortgage, renovation or decoration/furnishing costs. Providing the answer is in the positive, it is more than likely that your investment will be a beneficial one.
These calculations are important as they allow you to determine whether or not investing in property will be worthwhile. Additionally, organising your figures and paperwork will prove to your mortgage lender that you are serious about the decision to rent property, so they will be much more likely to lend to you. Also, as the calculations are all based on estimates, you are given a certain degree of flexibility with your figures, over compensating or under compensating to ensure that you will be able to cope in a fluctuating market.
The specialised nature of Buy to Let finance means that the best value for money will not be found on the high street. Looking for a mortgage broker is the advisable route to take in this instance, as they really do know their stuff regarding the Buy to Let market.
Look to find a broker who is independent and then you are guaranteed impartial advice and the best value for money. Obtaining financial advice is also imperative if this is your first venture into Buy to Let and renting a second property. Entering the market is a long term commitment and is therefore a decision that should not be taken lightly.
So, is 2011 the right time to Buy to Let? With the housing market as it is at the moment, and the reletive availability of commercial property finance now has never been a better time to enter the letting market. The environment is favourable for landlords and demand for rented property is increasing almost daily. So, if you are looking for a new adventure as we enter the New Year, then consider buy to let as the biggest and best investment of your lifetime.
