Ever considered becoming a landlord? Many people view property as a profitable investment vehicle. Using buy-to-let mortgages to become a landlord can be a way to start generating a new stream of income, as long as its costs. 

Rental properties generally generate about £1,000 per month in rent. Get your costs under control, and one property could be making you £200 a month or so, nearly £2,500 a year. Get the ball rolling on more property, and suddenly you have a small real estate empire. From the suburbs to the city streets, with property, you can really go places. 

Tenants pay the mortgage for you, providing you keep it occupied, and ten or twenty years down the line you can cash in on all that lovely equity. This style of investing can be a beneficial long-term venture if you do it right. Take a close look at potential investment properties before putting your money down, and remember that becoming a landlord comes with its own share of responsibilities too.

Picking Profitable Property

Choosing the right investment property is job number one. Keeping your home-to-let occupied is the difference between profit and loss. Tenant preferences should lead your search. Like they always say, location, location, location. 

For families, proximity to good schools and amenities is important. On the other hand, students may seek affordable properties near their university, transportation, and nightlife. Smaller properties in the right location can also serve as attractive rental homes. Updating and renovating the home quickly can give you more rental income and allow you to invest a little extra in the property. 

Seeking out specialists in DIY and decor is easy with MyBuilder. Their search site can help you find local painters and decorators near you with the expertise you need, and you can check their work with previous customers. Getting them in and out quickly, with work completed to a high standard will be key to keeping costs down. The sooner a property has a paying tenant, the less your year one costs are.

New-build homes are worth a look. Depending on the deal, they could present a quick and easy solution. Make sure the demand for these homes exists before you move forward. You do not want to buy into a property developer’s mistake. New builds often have better energy efficiency, which is increasingly important to tenants as costs escalate. Check the distance between your property and any potential buy-to-let. You may have to go from your home to your rental property in emergencies.

Finding Funding

Without access to six-figure savings, you’re going to have to get a mortgage to buy an investment property. The eligibility criteria and repayment terms for these mortgages differ a little from a standard home mortgage. 

Typically, you must already be a homeowner earning over £25,000 annually with a good credit score. Some lenders impose an age limit of 70 years. A big difference between a buy-to-let mortgage and a home mortgage is the size of the deposit. 

Generally, mortgage lenders require a larger deposit, often around 25% or more for a buy-to-let mortgage instead of 10% plus for homeowners. While it’s possible to get a mortgage with a smaller deposit, this usually means higher fees and inflated interest rates, which reduce the profitability of the investment.

Rental Yield Is Your Return On Investment

The potential ROI is always going to be a metric that carries a lot of weight when you’re balancing risks against rewards. A useful way to gauge a property’s potential profitability is its rental yield, which represents the rent as a percentage of the property’s value. 

If you plan to purchase a £200,000 property and expect to charge £1,000 per month in rent, that is £12,000 per year gross rental income. The rental yield of 12,000 is divided by 200,000, (annual income by mortgaged value), then multiplied by 100. This gives you a percentage, in this case, a 6% yield. 

Rental yields of around 5% are generally considered a good return. Certain properties may offer yields exceeding 7%, especially Houses in Multiple Occupation (HMOs). These can reach between 12% and 15%. But mo’ money means mo’ problems. Extra tenants come with extra issues, and higher returns often mean higher maintenance in time and money. 

It’s important to allocate funds for maintenance costs too, though the exact amount can vary. Setting aside at least £250 per year for a fairly modern rental home is a bare minimum. More tenants and older properties with older features may need more money kept in reserve to handle boiler breakdowns and other higher-cost maintenance issues.

It is easy to see why people start playing Monopoly with real money, and real houses. The potential for profit is huge, and you can keep rolling the dice to move on to new streets and grow your property portfolio. Investing in a buy-to-let property is definitely worth a look, is it time to do a little window shopping at the estate agents?