Buy-To-Let Tips

Practical Advice To Help You Profit From Rental Property

Sorting Out Buy To Let Property Finance

Before you purchase your investment property you need to spend some time working out your buy-to-let finance needs. These fall into three categories:

1.  the property purchase costs

2.  the estimated rental income of the property

3.  the annual expenses of running the property

You need to estimate the figures for each of these items for any property you are considering purchasing, and then study them closely before deciding whether going ahead with the purchase.

1. Property Purchase Costs

• purchase price
• stamp duty
• solicitor's fees
• survey and valuation fees
• mortgage arrangement fees
• refurbishment and decoration costs
• furnishing costs

These costs are a one-off outlay to cover the cost of buying the property. You need to have cash available to cover these at the outset. This is the first step in calculating your buy-to-let property finance requirements.

2. Property Rental Income

• annual rent
• less an allowance for void periods during the year

This produces a total annual net income.

Be sure to get a realistic estimate for rental income by contacting several letting agents. Developers of apartments being sold to investors have been known to exaggerate potetial rental incomes in order to justify a higher selling price. Making an accurate assessment of rental potential is the second step in calculating your buy-to-let property finance requirements.

3. Annual Expenses

• mortgage interest payments
• agent's letting fees
• agent's management fees
• property repairs
• decoration and refurbishment
• gas (and electrical system) tests and service
• insurance (buildings, contents, loss of income, public liability etc.)
• council tax and utilities when the property is unoccupied
• service charge (for leasehold properties)
• ground rent (for leasehold properties)

This produces a total annual expenditure.

Ensuring you have accounted for all the likely expenses you will face as an investment property owner is the third step in calculating your buy-to-let property finance requirements.

From the income and expenditure figures you can them calculate your cash surplus - if you have one! If there is not a surplus - don't invest. In today's weak housing market you do not want to be caught in the trap of possibly falling house prices combined with losing money on your investment every month.

Err on the side of caution. If your property is without a tenant for several months it is important to have enough cash on hand to cover the monthly outgoings

Gross Yield

The rent you could earn in a year if the house was tenanted, shown as a percentage of the property value.

Gross Yield = (annual rental income)/(current value of house) x 100%

Net Yield

This is a percentage calculated in the same way as gross yield but with the running costs subtracted from the annual rental income.