If you are just starting out on your landlord journey, it makes sense to build your portfolio on solid and well-researched foundations.
As BTL is an “investment”, it is important to understand and mitigate risk, as the value of your investments can go down as well as up.
At Northwood, we have 20 years of supporting landlords throughout the entire landlord life-cycle, and these are our 6 top tips of things you need to do before acquiring your first BTL investment property:
1. Set your goals
It’s vital to start with the end in mind, otherwise how do you create a plan to achieve your aims? Are you investing in property for income, capital growth, as a pension hedge, or as a legacy for your children? What sort of income and/or capital growth do you need to achieve this goal?
Asking these questions will help you create a bespoke investment strategy that is right for YOU! It is never a case of “one size fits all” in property investment, so make sure that you ensure that your goals are going to be realised. Otherwise you will just scatter-gun around and make make poor choices.
We recommend that any investor in BTL takes a long term view – a minimum of 15 to 20 years – so you need to think long-term not short-term.
2. Speak to a reputable mortgage broker
Unless you are a cash buyer, you will typically be looking to lend up to 75% of the cost of a BTL property from a mortgage lender.
As BTL lending criteria is becoming more strict, it is important to speak to a mortgage broker to find out which financial products you qualify for.
It is also helpful to be “pre-approved” for lending, so that when you put an offer in on a property, you can use your status as having finance in place to perhaps make your offer more attractive, and even secure a better deal as a result of being able to complete quickly.
If you need a recommendation for a reputable mortgage broker, you can contact any of our 80+ offices around the U.K. and they will be happy to advise. As BTL lending is largely unregulated, it is worth asking for a recommendation to ensure you get the best possible advice from a broker for your situation.
3. Speak to an accountant
When purchasing a BTL investment property, it is important to ensure you own it in the most tax efficient manner. You have the option of buying it in your own name, or purchasing it through a limited company structure. There are pro’s and con’s for each and it is very personal to you and your financial position.
We recommend that you speak to a reputable accountant about the best acquisition structure for you and your situation.
If you need a recommendation for a reputable accountant, you can contact any of our 80+ offices around the U.K. and they will be happy to point you in the right direction.
4. Assess tenant demand
As a landlord, you take on the financial risk of the tenant not paying the rent and the risk of not securing a tenant for your investment.
There really is no point in buying a BTL property in an area of poor tenant demand.
Therefore you need to assess the tenant demand and buy a property that is going to be popular with tenants and that will generate income from Day One of ownership.
In some towns and cities, there is an over-saturation of flats, and a shortage of houses, so a house would be a better buy.
There are also two different types of tenant – private tenants and those in receipt of Local Housing Allowance (LHA).
Many landlords prefer to let to private tenants.
Your local Northwood office will be able to advise you on which properties and areas have the highest tenant demand. They may even have tenanted properties for sale, so that you can generate an income from Day One of ownership.
5. Make sure the deal stacks up
BTL lending is based on how much borrowing the rent will support. Lenders typically look for 125% coverage of the rent over the mortgage, although there are currently moves afoot in the industry to increase this to 135% coverage.
Whilst there are some very attractive interest rates around at the time of writing, you should factor in interest rate rises, and we recommend you crunch the numbers with a mortgage interest rate of 5%.
After you have done this, and deducted all running costs such as mortgage, lettings agents fees, insurance, voids, repairs, etc. does your property still deliver a positive net cashflow per month?
You should ensure that your property has a positive net cash flow each month after all costs – otherwise it will not be an asset, it will be a liability!
6. Decide how hands-on your want to be
Being a landlord is not simply a case of renting out a property and watching the rental payment come in every month.
As a landlord, you have to adhere to over 100 Government statutes and regulations in order to provide a safe and compliant home for your tenant.
Many landlords who are also in full-time employment lead busy lives, and do not have time to manage their investment.
They choose to use the services of a lettings agent.
There are different levels of service to choose from and at Northwood you can find the right level of service for you – up to and including our market-leading Guaranteed Rent option.
Here is a snapshot of how we can assist:
All our offices around the U.K. are committed to advising landlords throughout their property journey, bringing expert knowledge, contacts, and property management to support your investment and ensure that it flourishes.
Northwood is one of the largest and most recognised estate agents in the U.K. and the leading supplier of Guaranteed Rent to give landlords complete peace of mind.
Find us on Twitter @northwoodUK or visit our YouTube Channel.