Bricks and mortar: Buy-to-let is a popular option for those who would rather grow their wealth through property than shares or cash
For many buy-to-let looks an attractive income investment in a time of low rates and stock market volatility. But if you are considering investing in property – or improving your returns on a buy-to-let you already own – it’s important to do things right.
Read This is Money’s top ten buy-to-let tips – the essential guide to successful property investing.
Buy-to-let may not be quite the hot property of the boom years, but it has seen a resurgence in recent times. As an income investment for those with enough money to raise a big deposit buy-to-let looks attractive, especially compared to low savings rates and stock market volatility.
But beware low rates. One day they must rise and you need to know your investment can stand that test. Many investors who bought in the boom years before 2007 struggled as mortgage rates rose, a sizeable number were thrown a lifeline when the base rate was slashed to 0.5 per cent.
Rates have stuck there since 2008, but remember they will rise again.
Despite the potential for costs to rise, lower house prices, more tenants in the market, rising rents and improving mortgage deals have tempted investors once more. If you are planning on investing, or just want to know more, we tell you the ten essential things to consider for a successful buy-to-let investment.
Like any investment, buy-to-let comes with no guarantees, but for those who have more faith in bricks and mortar than stocks and shares below are This is Money’s top ten tips.
BUY-TO-LET MORTGAGE RATES TUMBLE, BUT BEWARE THE BIG FEES
Buy-to-let landlords need to beware fees, which can substantially push up the cost of a mortgage, especially if they are only fixing or tracking for a short deal period.
The biggest fees are typically those charged as a percentage of the loan but even flat fees can run to £2,000.
1. Research the market
If you are new to buy-to-let, what do you know about the market? Do you know the risks, as well as the benefits.
Make sure buy-to-let is the investment you want. Your money might be able to perform better elsewhere. In recent years a high-rate savings account would beat most investments. Now rates are lower, but investing in buy-to-let means tying up capital in a property that may fall in value.
Remember that the return from an investment in funds, shares or an investment trust through an Isa will see you paying just 10 per cent tax on income and getting capital growth tax free. You will also have the ability to sell up quickly if you want.
The flipside is that you cannot buy an unloved investment fund and set about renovating it and adding value yourself.
Investing in buy-to-let involves committing tens of thousands of pounds to a property and typically taking out a mortgage. When house price rise, this means it is possible to make big leveraged gains above your mortgage debt, but when they fall your deposit gets hit and the mortgage stays the same.
Property investing has paid off handsomely for many people, both in terms of income and capital gains but it is essential that you go into it with your eyes wide open, acknowledging the potential advantages and disadvantages.
If you know someone who has invested in buy-to-let or let a property before ask them about their experiences – warts and all. The more knowledge you have and research you do, the better the chance of your investment paying off.