The term buy to let is a British term which means buying with the specific purpose of then using the property to generate revenue, usually in the form of rental yield. A buy-to-let mortgage then, is a mortgage loan, the terms of which are specifically tailored to this purpose.
This is not at all like buying a home to live in. Instead, a buy to let property is essentially a business investment. For many, having a property is preferable to buying stocks and shares that they can’t see. It’s a good idea, then, for those who are willing to have money tied up for a long period of time and are willing to accept that the housing and renter’s markets fluctuate.
Yes, there are definitely risks involved with a buy to let mortgage, but there are also ways to mitigate these risks.
How do buy-to-let property investments work?
Here are two ways you can buy a residential property: you can pay for it straight up with cash (if you have it) or you can use a cash deposit and finance the purchase of the property with a buy to let mortagage.
There are then two ways to profit from the property: revenues from rentals (what your tenants pay minus what you pay in maintenance and other overhead costs) or capital growth.
What’s capital growth? This is when you “flip” the property, earning a profit when you sell it for more than what you paid
Buy to Let Properties and Risks
Profiting with a buy to let property in today’s real estate market is definitely possible, but it requires a serious commitment. After all,getting a mortgage always comes with risk—the market can plummet, and if you need to sell the property for less than you bought it for you will still need to pay what you owe on the mortgage.
Renting your property has inherent risks too. Your tenants may leave and it could take months to find new ones. During that time, even if there isn’t any revenue from rent coming in, you will still need to make your mortgage payments, Having problem tenants can be even more disadvantageous, especially if you end up having to pay for repairs.
Then, of course, there is the unfortunate reality that because homes are expensive, new homeowners find themselves targeted by con artists.
Minimizing Risk and Extra Costs
Anyone who runs a buy-to-let property also ought to purchase building insurance, and in fact if you take out a buy to let mortgage you will have to also pay for building insurance. Landlord insurance, in contrast, isn’t a requirement under the law, but any financial expert will tell you that this insurance is an absolute must when it comes to minimizing risk.
In addition to insurance, there are other extra costs associated with buying and running a buy-to-let property, with or wothout a mortgage. Anyone who buys a house is responisble for paying survey fees, solicitor’s fees, and Stamp and duty land tax (in a ddition to other property taxes). Then there are the ongoing maintenance costs.
If you are planning on selling the property, you will likely also end up paying for a real estate agent and other marketing fees. There will also be legal costs.
Financial Freedom with a Buy-to-Let Property
Yes, there are risks, but there are also definitely rewards. Many individuals have been able to quit their day jobs and live more than comfortably managing rental properties and/or selling homes.
At Nova Financial Services, we can help you navigate the buy-to-let mortgage process from start to finish. Our financial experts can help you get the best deal on your mortgage and help you navigate the often complicated taxation system in such a way that you save even more.
To find out how we can help you with your buy to let mortage and property, please get in touch with us today.