| How to Buy to Let |
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to Let is the term used when someone buys an investment property and lets it out in return for a fixed sum of money. An increasing number of people are using this buy to let method of
investing in property to help secure their financial futures in the knowledge that property has historically performed well as an investment vehicle. In the UK, property prices have doubled
on average every 10-15 years which makes buy to let an appealing proposition and figures suggest that this is likely to continue. If you take in to account the shortage of new houses being
built, the increasing number of European workers coming over to the UK and the rate of divorce, this naturally creates a higher demand for rental property. |
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Property investors are acutely aware of these factors and will capitalize on both a rising and falling property market. For example in a rising property
market, a landlord will identify that this could price many buyers out of their affordability range which can result in them having to rent property instead. In a falling market,
a landlord will buy up property cheaply in the knowledge that if they retain the property for long enough, it should recover its shortfall based on historical figures. Whilst property
is falling, buyers are less likely to be keen to purchase an asset that is falling in value. |
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| Buy to Let is not a get rich quick scheme. Property investors should see buy to let as a long term investment. How you focus your buy to let business will depend on
whether you are more conscious of future capital appreciation or whether you are looking for a ‘passive income’. |
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| Capital appreciation |
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| When you are buying an investment property, you need to be confident that the property you are considering will achieve a good level of capital appreciation. This doesn’t
have to be in the immediate future but it is important that it will return a good level of profit in the long term. It is not so important to get a profit from your rental income as this
is likely to result in you paying more tax. But over time, it is more important that your property increases in value. This is known as capital appreciation. Ie the property becomes worth
more than what you initially paid for it. |
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| At a point that your properties have increased in value, you may be able to release additional equity. This may be used to fund deposits on additional investment properties
or to help fund your lifestyle. |
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| What Is It You Want From Your Investment Property? |
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| It is most likely that you will be investing in property with a view to making money from it. It is therefore important to understand how to capitalize on capital appreciation
and to generate a good positive cashflow situation. Some property investors prefer to focus on the capital appreciation, whereas others prefer to see a healthy profit from the monthly
rental income. It ultimately depends on what you feel most comfortable with and what your strategy is for your property portfolio. Dependent on which option you prefer, will most likely
determine the types of property you are better to consider. |
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| For example, if you want to buy a property that's likely to appreciate in value, then you'd be better to focus primarily on location. If you want a positive income return,
then a property’s location may not be as important as it will be the return or ‘yield’ that will afford you the surplus income from the property each month. |
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| Financial Independence and Passive Income |
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| More and more people are looking for alternative ways to secure their financial futures and independence. The idea of being able to quite the ‘day job’ is
one that most of us only dream about being able to achieve. However, with the right guidance and appointing the right people to help you, then you too can become one of the increasing
numbers of people finding a positive financial future from property investment. |
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| Financial Independence |
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| Gaining total financial independence - the freedom or release from the need to have to work. Can happen in a number of different ways. It can start
from cutting down your hours in your current day job to finally being in a position where you no longer have to work at all. Finding a way to achieving a passive income is the ideal way
to make this happen. This simply means that an income is coming to you and is largely irrelevant of the number of hours you have worked. It is almost self generating. Many property investors
have already done this and there is no reason why you can’t join them! But of course to reach this level will require a certain level of input and once achieved will require an element
of maintenance. |
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- For example, while rental income might seem to be passive income, there is the task of finding tenants, appointing letting agents, drawing up tenancy agreements, landlord inventories,
checking tenants in and out, collecting rent, maintenance of a property, managing the tenant, finding property tax accountants or filling in tax returns etc.
- 'Passive' is a word that really means avoiding being paid by the hour.
- Instead you seek to do some work today and leverage off it tomorrow. This leverage is in the form of receiving multiple payments without the need to work again.
- If you invest in a property that is cashflow efficient, then your hope is that the work involved in finding the property, maintaining or renovating the property, will ultimately
create a positive income stream that will see you through until you decide to sell the property or refinance the property on to another buy to let mortgage.
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| Time And Money |
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| Financial independence is not all about money |
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| As we get older, we experience that time is going past far too quickly. This can result in us feeling that our time is actually more important or more valuable than
money. |
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| Time is finite - money isn't. |
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| The reality is that most of us have other things that we'd rather be doing. And most of us would prefer to be our own boss. We would love to spend more time with our
families, traveling, playing golf etc! But of course most of our time is usually taken up with our jobs. So wouldn’t it be good if you didn’t have to work in the first place.
So if you want to work less for ‘your boss’ but don’t want to jeopardize your income or lifestyle, then it’s time to look at an alternative way to generate a passive
income if you want to cut down your hours and not your income!! |
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| Passive Income and Property Investing |
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| There 2 ways to make money when you are in property investing: |
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- Your Investment Property increases in value over a period of time
- You earn surplus income from the rent achieved against the monthly repayments you make on the buy to let or investment mortgage secured against the investment property.
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| Both are valuable and can occur independently to the other. The problem is when the occur together ! That is, you can have capital appreciation and no positive income
returns (this is negative gearing), or you can have a positive income return and no or negative capital appreciation, or you can have no capital appreciation and no positive income too
(or both). |
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Is capital appreciation better than a positive income return? Maybe, Maybe not.
To capitalize on your gain you will need to create some payments to yourself. Remember though that once you've spent the release of equity or gain then it's gone until such point that
the investment property has increased enough to take another payment. This is of course dependent on the property markets and how they are performing so there is no guarantee when you
will next be able to do this. |
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| Positive income from surplus rent achieved over the monthly buy to let mortgage or investment loan may continue indefinitely. You may experience the occasional rental
voids but providing you have bought an investment property in a good location with a good tenant and rental demand then it is likely that the rental voids will be few. Therefore, your
passive income stream is not so limited. |
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| Conclusion |
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| If the reason why you want to make money in property investment and real estate is to achieve some degree of financial independence and having the ability to work less
hours, then perhaps you should focus on positive income returns rather than capital appreciation. Capital appreciation can take a longer period of time and of course there are no guarantees.
But with a number of investment properties creating a surplus each month from the rent, you may be able to put this towards your monthly income to help pay the food bills! |
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| Ideally you want an investment property that is creating good capital appreciation and positive income. These opportunities are rare, but with enough research can be
found!! |
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| Buy to Let - The Basics |
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| Buy to let and property investment have become a very popular way of helping to secure a better financial future for many people. Whether you are new to buy to let or
an experienced established landlord with multiple properties in your portfolio, there are some basic hints and tips that can be used when sourcing ideal investment property for sale. |
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| Research |
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| Research is the most important part of any landlord or property investor looking to get involved in buy to let or property investment. When you have done your own research
and you think you have enough knowledge, do a little bit more and keep a constant eye on the property market and the areas you are considering investing in. |
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- If the area is full of buy to let property investors the supply of property to let might outweigh tenant demand and create pressure to reduce rents.
- Consider established areas with good communications links
- Consider areas benefiting from investment into regeneration
- Find out where new schools, universities, business and retail parks are being constructed
- Research tenant demand as your highest priority. Find a letting agent to discuss this.
- Consider ongoing costs, e.g. buy to let mortgage payments, maintenance, service charges etc.
- Even a new build property in time will need maintenance.
- Be prepared to buy tired investment properties and refurbish them to a good standard.
- Build a team of reliable tradesmen so that you can react quickly if an excellent investment property opportunity arises.
- Find a good buy to let mortgage provider. Finding the correct buy to let mortgage is crucial to your success when you are buying and selling investment property.
- Attend a buy to let property course. There are plenty of companies that charge fees to attend educational property courses but if you can find one that doesn’t charge, this
can be an ideal way of getting all the information you need to help you get started in buy to let and understanding how to minimize your risks and maximize your returns.
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| To Buy or Not to Buy an investment property for sale? |
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- As soon as you find a property you like, run a ‘To Let’ advert in the local press. If the phone rings a lot buy it. If not walk away.
- A variation on the theme would be to run a display advert “Seeking long term tenants”. I am a portfolio landlord. You find your perfect property and I will consider buying
it and letting it back to you”
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| Demand and professional guidance |
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| Find a letting agent and discuss the demand for properties in the areas you are interested in. They should also be able to indicate the level of rent you could expect
to achieve and what type of tenancy is more suitable for the property and area. |
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| University Lettings |
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| Talk to Student letting officers – build rapport so they promote your property above others. They too can give you good advice on demand, i.e. where, why, how
much etc. |
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| Preparing to let |
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- This is an investment and cashflow is the key factor to your buy to let business. Stick to neutral colours that will go with anything. For example, a red sofa might not match a green
carpet, however, all colours look good on beige.
- Carpets - light beige looks great when clean. Light colours make room look lighter, brighter and bigger. They also encourage cleanliness and are easy to justify cleaning when a tenant
vacates. Look for felt backed bleach cleanable carpets which do not require underlay. Replace carpets every 3-5 years, clean every tenant change and debit from damage deposit.
- Check with the local letting agent whether there is more demand for furnished or unfurnished property in the area.
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| Using a Letting Agent |
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| Some letting agents may offer different levels of service which may be from as little as just sourcing the tenant for you right through to full management of the investment
property. Find a letting agent. |
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| The key benefits to using a letting agent are: |
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- Letting Agents will have extensive knowledge of the area that you are looking to let your property in.
- Letting Agents will be familiar with the types of tenants that your buy to let property is likely to attract.
- Letting Agents will be aware of the realistic level of rent you can expect to receive on a particular type of property.
- Letting Agents will have a database of tenants actively looking for suitable property to let.
- Letting Agents will have budgets available to extend their advertising to a number of different sources.
- Subject to the level of service you opt for, they can provide tenant sourcing, drawing up tenancy agreements, landlord inventories, credit checking tenants, rent collection and other
administrative issues relating to the renting of your property.
- Before you commit to using a particular letting agent make sure you are happy that they are offering a competitive price. Some agents will also be members of ARLA (Association of
Residential Letting Agents).
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| If Letting Yourself |
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| Join your local Landlords association – www.rla.org.uk |
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- This is the easiest way to keep up with legislation and to obtain advice on getting your paperwork right.
- Other landlords in your area will be keen to share good and bad experiences. Learn from their experiences rather than making your own mistakes.
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| Application form |
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- Obtain full details including names, addresses and contact numbers of referees and emergency contacts. Also obtain previous addresses, NI numbers, employer details and proof of earnings.
This makes life easier if you ever need to track down an absconding tenant.
- If possible, fill in an application form at the prospective tenants home. This will at the same time allow you to see how they look after it.
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| Fees |
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| Charge a fee to tenants of around £100 for completion of tenancy agreements, referencing, inventory etc. |
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| Deposit-take 5 - 7 weeks rent plus one months rent monthly in advance |
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| Tenants often cancel standing orders on the month prior to final payment – if this happens you still have some money to cover damages |
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| Check in / out |
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- Purchase a Landlord Inventory - include everything including starting colour, condition of walls, ceilings, doors, fixtures & fittings etc and get it signed so you can prove
damages when the tenant vacates. The more detail the better, even include the colour of light switches and door handles and what they are made of. Comments like “carpets have
just been professionally cleaned” or “walls are freshly painted” will also help to prevent disputes on checkout.
- Ensure that you arrange a check out inspection and make sure the tenant is present – get them to sign to agree to any damages and/or required repairs.
- Complete utilities meter checks and ensure the incoming/vacating tenant signs to confirm meter readings.
- Inform the utilities companies and local authorities in writing of incoming/outgoing tenants and any applicable meter readings
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| Tenancy Agreement |
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| You will need to purchase a tenancy agreement. This will protect you and your tenants. Rather than selecting a do it yourself basic agreement off the shelf, buytolet4
sale have a downloadable solicitor prepared agreement. |
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| Look after your tenants – They are a valuable asset to your investment property!! |
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| Happy tenants will respect your property and will refer other potential tenants to you. |
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