Buy to let is one of the most popular types of property investment in the UK. While a fluctuating market has increased the risks of investing in a buy to let property, it still has the potential to be a highly lucrative investment when done right. In fact, you could gain a significant profit from investing in buy to let property here in the UK – just be aware of the risks this type of property investment has!
Is Buy to Let a Good Property Investment?
Considering the rising cost of rent in the UK it is safe to say that buy to let remains a good property investment. When buying a property to let, you can expect a steady income that helps to pay off the mortgage and provide a nice profit.
There are important factors that influence how profitable a buy to let investment can be. For example, you need to find a suitable buy to let mortgage, which are more expensive than a residential mortgage, while it’s important to find a suitable property for renting.
If you manage to find good property and a buy to let mortgage, it’s possible to make rental yields of between 5-10%. There are still risks of making such an investment though, so always be aware of these – speaking with a property investment advisor is a great way to get more insight.
The Importance of the Right Mortgage
Buy to let property investment is only a good investment with the right mortgage, otherwise you may not get the desired return on investment. As mentioned, buy to let mortgages cost more than residential mortgages due to the higher risk they are for the lender.
That said, it’s more than possible to find a good buy to let mortgage that provides high rental yields to make you a profit. Just be aware of the higher costs and how much you need to invest!
For instance, a buy to let mortgage always requires a higher deposit. The minimum requirement in most cases is 25%, yet if you can afford a higher deposit of around 40% you are guaranteed better terms on the mortgage.
Also, buy to let mortgages are usually interest only. Rental yields will only pay off interest and give you some profit but after the mortgage term has finished, you’d likely need to sell to pay off the remainder of the loan.
Determining Rental Income
Before you’re accepted for a buy to let mortgage the lender will look at the possible rental income to determine your loan amount. Therefore, you want to determine potential rental income before applying for the mortgage, as this gives you an idea of the amount you can borrow from the lender.
Determining rental income isn’t too difficult. Looking at local property listings and seeing how much similar property is being rented for gives a good indication of your possible rental income. You can also speak to letting agents, local landlords, and a property investment advisor for similar information.
A minimum rental income of 125% is usually required for a profitable buy to let investment. This covers mortgage payments and additional expenses required when renting property, such as preparing it for new tenants.