Buy-to-let is a commonly used term for purchasing a residential property with a purpose of letting it out to tenants rather than lived in by the owner. This is a type of investment as old as the practice of land ownership.
Buy-to-let property can generate short term rental income, providing that the owner (the landlord) accounts that the revenue will cover taxes, cost of maintaining the property and mortgage, should there be one.
Providing the value of the property appreciates, these investments can also return mid to long term profits through capital growth.
There are a number of points to consider prior to purchasing a buy-to-let property as an investment:
- Area – areas command different rental yields and capital growth. Investors may choose to focus on an area where property prices are rising but rents remain steady, or other way round;
- Property Condition – investors can potentially increase the value of their asset through renovation and conversion, but some investors will want a property that is ready to rent immediately;
- Mortgage arrangements – interest rates on buy-to-let mortgages are usually higher. The minimum deposit for a buy-to-let mortgage is usually 25% of the property’s value (although it can vary between 20-40%);
- Single or multi-unit purchase – in some cases bulk discounts are available in multi-unit freehold blocks (MUFBs) when investors looking to buy several properties at once;
- Funds liquidity – it might take a while to access the money invested in property;
- Landlord responsibilities – it is important to understand your rights and responsibilities when becoming a landlord.
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