Buy to Let

Bournemouth Buy to Let
Becoming a landlord

At Homes Direct, we advise landlords that they should view their property as investment and a business venture. You will want to make sure that service is both profitable and organised.

You will need to assess the following factors:

  • Risk of a buy-to-let business
  • Investment potential
  • Your own personal skills
  • Capabilities and whether you’ll be able to run a buy-to-let business

Deciding to become a landlord

Before considering letting out your property and becoming a landlord, you will have to be aware of the factors that could impact on you becoming a landlord. We have listed the following factors you need to be aware of:

  • Do you have the spare time to oversee your property?
  • Will you be ready to accept responsibility for safety issues?
  • Are you willing to seek out information and facts?
  • Will you be willing to consult for advice?
  • Can you accept a risk element when conducting a business deal?
  • Understand the profitability of the property you are planning to let
  • Understand your legal obligation to the tenants and safety issues
  • Be aware of your tax responsibilities
  • Seek advice from a solicitor, tax specialist and mortgage broker regarding the best buy-to-let options
Landlords Guide
Bournemouth Buy to Let

Will you make a profit from a buy to let?

Before making an investment into a buy to let property, you will need to calculate the costs that will be involved in purchasing a buy to let property as well as the returns involved. We advise landlords to make sure that the turnover produced by the property exceeds the costs invested in the property. This includes the cost of maintenance, funding and buying. As a guideline, we recommend that the rent exceed the running costs by around 25-30%.

Before investing into a property, you should work out the costs the property will incur and the potential returns before investing into a particular property. Let Direct recommends to potential landlords that they should breakdown the costs of buying, running and selling the property during this process.

When buying a property

If you are thinking of investing in a property, you should be aware of the costs involved. After time, the costs will begin to mount up as a property is a big financial investment for anyone. You will have to consider the following: legal fees, stamp duty, mortgage arrangement fees, broker fees and survey fees.

As well as the aforementioned costs, you will have to pay for a deposit which can be 25-to-30% of the property’s overall value. New build properties like city centre flats often require a higher deposit than the average as they are considered by mortgage lenders to be high-risk properties. This is due to the impact of the recent credit crunch which led to an oversupply of such properties in certain areas.

Costs involved in running a buy to let property

The costs involved with running a buy to let property will vary on the owner and the property itself. In most cases, the mortgage itself is the highest outgoing cost for many property owners. We recommend potential landlords to ensure they keep their mortgage low as possible; in addition you should search around for the best deal for your financial circumstances. Our company has years of experience in helping customers find the best mortgages, so if you require advice, do not hesitate to get in touch.

With the mortgage cost accounted for, you will then have to bear in mind management costs and letting agent set-up fees, tenant finding fees, insurance cost, safety certificates for electric and gas and maintenance costs. In addition, you will need landlord insurance which will cover the costs of damage and bad tenants. Then you will have to bear in mind that your property could be empty for undetermined periods of time.

Take a typical Buy to let property worth £ 185,000

Capital costs: Mortgage of 75% of £ 185,000 = £ 138,750 Stamp duty at 1% = £ 1,850 Deposit = £ 46,250 The ongoing financial costs: Annual mortgage costs on an interest-only mortgage £ 138,750 @ 6% = £ 8,325 Building and contents insurance = £ 338 Gas and electrical safety certificate = £ 150 Landlords insurance = £ 300 Ongoing lettings costs: Agent set-up fee = £ 200-300 Cost of finding a tenant = 10% of annual rental income Letting management costs = 2-5% of annual rental income

The costs of selling a property

Are you thinking of selling a property? You will have to take in account, the costs involved in selling a property. There will be fees such as removal fees, legal costs, estate agency fees and a home information pack. We advise customers that by rule of thumb, selling a property for £250,000 will cost around 2% of the sale price and if property is priced over this amount, the figure will increase to 2.5% of the sale price.

Investment returns

When investing in a property, you will need to ensure that your property (otherwise known as a portfolio) is capable of making a good return against other investments. If you wish to analyse the investment that your property is making and the return, you will need to calculate the return on an annual basis and over the time you wish to keep the property.

The return of a property is otherwise known as the yield and can calculated in a variety of different ways such as annual gross yield and return on investment.

What are the different types of yield available?

Annual Gross Yield

The annual gross yield refers to when the net income is used as a percentage of the capital investment. This can be calculated by calculating the property’s net rental income minus the letting costs; divide this figure by monies invested in the property such as the deposit with purchase costs of the property. The average for the annual gross yield for your property will range from 4-to-10% though this will depend on the property being let.

Return on investment

Return on investment refers to the total return accrued over time which includes all income and capital growth with costs taken out and used as a percentage of the capital investment.

WANT TO KNOW MORE? GET IN TOUCH WITH US, WE'D BE HAPPY TO HELP!