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buy to let guide

By RWinvest    February 7th, 2018

There are many things to assess when looking for an investment property, from the type of investment to the location and developer. It can feel overwhelming to begin with. At RW Invest, when it comes to buy to let advice, there are some key factors we suggest that our clients should consider. These can prove useful to first-time and experienced investors alike. So, if you’re unsure where to begin, or are simply looking for some buy to let advice, below are some things for you to consider.

Guide Overview:

  • What is buy to let? 
  • Infographic
  • Buy to Let Property
  • Off Plan Investments
  • Buy to Let Stamp Duty
  • Buy to Let Deposit
  • Does the developer have a good track record?

So, what is buy to let?

Buy to let is where a property is purchased specifically to be rented out to tenants rather than lived in by the purchaser – the property is ‘bought’ to be ‘let’ to tenants.

Investors profit this way by generating an income via the rent charged and additionally through capital gain (medium to long-term increase in the value of the property). This makes buy to let property investment one of the only asset classes to provide two different returns on investment.

In terms of capital growth, you should consider the economy of the area the property is in – look at growth in the economy and the forecast for the future. Regeneration is also key; if there is money coming into an area, jobs will follow and therefore initiate more people moving to the area looking for property to rent. If investors are putting their money into the city, growth could be imminent.

According to Zoopla, a good rental yield is generally benchmarked at around 5% a year. Some properties might reap yields as high as 7%, while HMOs can achieve between 12% and 15%. Many of our properties across the Northern Powerhouse and beyond offer rental yields of between 7% to 8%; double the returns currently achievable in London.

When choosing a property type, you’ll need to consider both the potential for rental income as well as capital gain. If you want to benefit from both forms of return, it’s essential to consider the location in which you choose to invest.

Buy to Let Property

Location is equally as important when choosing a buy to let property as it is when choosing your own home but the factors you need to consider differ. When choosing a buy to let property, rather than focusing on one specific area, it’s beneficial to keep an open mind and practically evaluate the locations that offer the best returns on investment.

You need to ask, where are the areas experiencing the most regeneration? If there is an area experiencing vast regeneration, providing a catalyst for economic growth and change, then this would be a fantastic opportunity to invest in buy to let property.

Research into these factors is key. So, it’s always useful to seek expert advice from our property investment consultants who have a wealth of knowledge about the best buy to let locations in 2018.

At RWinvest, we’re advising our clients to set their sights on the towns and cities of the Northern Powerhouse. Thanks to the Government’s Northern Powerhouse investment, there is a continued focus on ploughing investment into the north. Chancellor of the Exchequer, Philip Hammond, has recently declared: “If the Northern Powerhouse were a country, it would be among the biggest economies in Europe.”

We have a number of investment properties for sale spanning the UK’s top buy to let locations, which are experiencing regeneration and set to experience significant growth. Liverpool has been consistently ranked as the UK’s number-one buy to let location, home to some of the UK’s coolest places to live, along with Manchester, which is rapidly establishing itself as a thriving international business hub.

Off-plan, completed or refurbished investment property?

Understanding the differences between off-plan, refurbished and completed developments is key when investing in property. Each of these buy to let investments have their merits, but you need to assess which suits you.

With an off-plan or new build property, you can liaise with developers to have input in what the property will include and end with something completely brand-new and purpose-built for buy to let. These will often be lower-priced and in areas of high regeneration, so you get all the benefits of a great location and a brand-new property.

Refurbished properties are excellent for investors who would like to invest in a brand-new property, but wish to view something physical. Refurbished properties have a quicker turnaround than off-plan and can provide faster returns. The fact a property is being refurbished may suggest it is in a regeneration area and this could mean demand is high from tenants. These properties can often have strong heritage or local connections, adding another unique selling point.

A completed property provides a quick way to make money; the property is finished and is often tenanted, so rental income can be made straight away. Investors can physically see the property but it may not be located in the same regeneration areas as off-plan properties – with a lower potential for capital gain. These properties may have a management company in place already, so you’ll need to do your research.

Buy to Let Stamp Duty

So, how does buy to let stamp duty work? Firstly, stamp duty is paid by everyone purchasing a property to let in England, Northern Ireland and Wales above £40,000, including overseas buyers.

Stamp duty tax liability for anyone purchasing an additional property has increased from April 2016. 2015’s Autumn Statement announced a 3% additional rate of Stamp Duty Land Tax (SDLT) on purchases of additional properties such as buy to lets and second homes with effect from the 1st April 2016.

From April 2016, property buyers in England and Wales will have to pay an additional 3% on each stamp duty band:

To discuss buy to let stamp duty and which UK areas will provide the highest returns on investments in 2018 and beyond, contact one of our Property Investment Consultants. The RW Invest team have a wealth of expert knowledge on the UK’s buy to let hotspots.

Buy to Let Deposit

So how does a buy to let deposit work? To purchase a buy to let property, you can use your own cash or take out a buy to let mortgage with a cash deposit. But there are some key differences between regular and buy to let mortgages that investors should know.

A buy to let mortgage is a specific loan provided for the purpose of purchasing a residential property that will be rented out to tenants. Rates and fees tend to be typically higher. Unlike standard mortgages, which are calculated based on the applicant’s salary, buy to let mortgages operate differently. Lenders will typically look at your potential rental income, rather than your salary or wages, to decide whether you can afford the loan.

The maximum you can borrow is linked to the amount of rental income you expect to receive. Lenders typically need the rental income to be 25–30% higher than their mortgage payment. Most buy to let mortgages are interest-only. This means you don’t pay anything each month, but at the end of the mortgage term you repay the capital in full.

Does the developer have a good track record?

Another thing we ask our clients to consider is the developer’s track record. This is an important factor and at RWinvest, we assess this fully by performing due diligence on each developer and ensuring they meet our standards.

It is useful for investors to look for previously completed properties by the developer and see whether these were completed on time and to budget. You could additionally look at the types of property the developer has previously completed. For example, if you are looking at a period property, has the developer previously completed a property like this? This could give you an idea of how this project will work and whether it is suitable for your needs.

These are just a few of the things that we ask our clients to consider. We would encourage any investors looking for a property investment to give our expert property investment consultants a call; they can talk you through your options and find you the perfect investment from our varied portfolio.

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