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Buy To Let Guide
The buy to let industry has exploded over the last couple of years due to a more lucrative option for investors in light of the current stock market downturn. Yields are forecasted to rise to 10% with the added bonus of strong capital growth. In addition, with interest on buy-to-let mortgages at below 6%, the growth in an initial investment geared at 80% over 3 years can be higher than 30% (even accounting for stamp duty and administration costs).
Although the rental market has grown significantly in the last few years, it is nowhere near capacity with housing professionals and the Government is forecasting further growth in the rental market.
- Historically, property values have seen strong growth and forecasts still show potential capital growth as encouraging
- Low cost of borrowing likely to continue
- The advantageous gearing effect of financing with a mortgage
- Increase in rental demand, with the Government predicting an extra 3.8m homes will be required between 1996 and 2021, of which 1.4m would probably be rented
- The rental market likely to remain bullish as prices often too high for many first time buyers, who are choosing instead to rent.
- The Housing Act 1988 de-regulated the rental market and provided a fairer legal framework for tenants and landlords.
- So, the rental sector will continue to grow. However, investment in property comes with some risks.
What should you consider when investing in property?
Ensure you buy a property that provides the best mix of stable and lucrative rental income, and a strong capital growth potential. For the majority of us, we will not find this property in the area in which we live. If you are not sure, take professional advice, but in principle:
Choosing the right type of property is essential, but can be difficult for those who do not understand the market
Location is important, both for attracting tenants to ensure the void periods are minimised, and for capital growth. Property can take time to buy or sell, so you do not have instant access to your investment.
One leading letting agent is advising people against the growing phenomena of “buying blind” without speaking to experts. They warn that failure to do so could lead to a major financial headache and loss of investment.
Buying blind refers to the process where investors hand over cash to property companies to buy homes for rent without ever viewing them. Unfortunately too many investors have put their faith and money in a growing number of dubious firms who have bought run down properties that do not stand a chance of ever being rented out unless thousands of pounds are spent making them habitable.
The right property in the right area is one of the main keys to a successful buy to let.
“It can therefore be risky to buy without either taking advice from an ARLA registered letting or managing agent who are experts in the local areas. They should be able to advise you on the areas that attract good tenants and the type of properties that are sought after by renters. For example, there is no point buying a large family house if the area you are considering attracts young professionals who may want one or two bedroom flats.”
For many buy to let investors securing a tenant as quickly as possible is the top priority in order to enjoy a good rental return. However, a leading residential letting agent is advising amateur landlords of important legislation that they should be aware of before taking the plunge.
Failure to adhere to the wealth of legislation surrounding property letting and in particular the safety regulations could have a devastating affect on a rental investment.
There is a wealth of safety requirements a landlord has to check before renting out a property. These refer to many areas including gas installation and fire safety all which have their own regulations outlining a landlord’s responsibility. However, there are two main laws that underpin all the rest. These are the Defective Premises Act 1972 and the Health & Safety at Work 1974. Both are of equal importance and failure to understand or adhere to them could land a landlord in deep water.”
Safe from personal injury
Under the Defective Premises Act a landlord must ensure their property in well maintained and all necessary repairs carried out quickly and properly. He or she has a duty to ensure that tenants and their guests are reasonably safe from personal injury caused by defects in the property. A landlord will be held liable if they are aware of a fault or maintenance problem and fail to repair them.
A defect could mean many things. For example a leak in the property may ruin the tenant’s possessions. If the landlord knew or should have known of repairs need and failed to fix before it caused damage they could be liable for the replacement or repairs of any damaged belongings.
Protection from harm
The Health and Safety at Work Act makes landlords aware of their responsibility to protect their tenants against major concerns such as gas related problems. Landlords can contract a managing agent to carry out these types of duties. The agent will be held liable if they fail in the duties to ensure a property is safely maintained.
It is not only tenants and their guests who landlords have to protect from harm, if you are employing an outside contractor or workman to undertake work in your property you have a duty of care to ensure the work they carry out is done properly. For example, if they leave wires exposed to disconnected light fittings, thus exposing the tenants to needless risk, the landlord could be found guilty of committing a criminal offence.
With so many health and safety laws to take into consideration, it is vital for the investor to ensure they are aware of these issues when buying a rental property, as well as the costs involved in making good any defects and the continuing maintenance required.
When considering buying a rental property it is advised to first speak to an ARLA registered letting or managing agent. They will be able to offer specialist advice and also put them in touch with the appropriately qualified people to carry out a full inspection of the property. By doing so it could save a would be landlord a lot of money and provide them with piece of mind.
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