Commercial Insurance Articles
Buy-to-let: 5 things to consider before investing
15 Dec 2015
More and more people have been purchasing buy-to-let properties in the last few years. Low interest rates, booming house prices and changes to pensions combine to make taking on a rental property seem like an attractive proposition.
It is certainly true that some people can make a healthy and secure income from buy-to-let property, but there are risks too. Not all properties are gilded money-making machines – the wrong house, the wrong place or the wrong tenant can mean a lot of stress and expense.
Let’s look at the top factors you should consider before purchasing a buy-to-let property.
1. Tenant profileNot everyone thinks the same way. The property with the beautiful garden might be suitable if you’re planning to let to a retiree couple – but don’t expect students to look after it. Likewise, a young family might be a lot less willing to rent a property with a steep staircase than a young professional would.
To really understand your target audience you will need to take time to research your chosen area and the kind of people who want to live there. This will determine the type of property you buy, maintenance costs and the level of rent.
2. LocationIt’s no use planning to let to students if your property is nowhere near the university or public transport links. Similarly, you might struggle to attract mature tenants if your property is situated in the middle of an area packed with clubs and bars.
Think about the area through the eyes of your potential tenants – what will they be looking for? Factors such as schools and local shops will matter to some, commuter connections and quietness might be top of the list for others.
3. Legal responsibilitiesMost people are ready for the extra income offered by a buy-to-let property, but how many are comfortable with the responsibility? Renting a property is like running a business: there are rules and regulations that apply, with attendant costs.
Failure to meet responsibilities for things such as gas safety, fire protection and electrical systems can result in fines or even prison. As a landlord you have to be prepared to put time, energy and money into ensuring your property is compliant.
4. When things go wrongBuy-to-let is not without risk. You may have to cover mortgage repayments when trying to replace tenants, or carrying out repairs. Interest rates could rise again in future, threatening the viability of your buy-to-let business plan.
Problem tenants are also a real risk: they can upset neighbours, cause property damage and take time to evict. You may have to pay a lawyer and bailiffs to get them out.
5. SafeguardsYou will need specialist buildings insurance and contents insurance for things like furniture, carpets and white goods. Don’t expect tenants to take as good care your property as you would.
You can also insure against tenants defaulting on their rental payments, which can be a real issue. Taking out full references before granting a tenancy is a must.