Buy-to-let is exactly as it sounds – you purchase a property in order to then rent it out to tenants. While the investment tends to be high in the initial stages, this is a long-term investment which can work out to be extremely financially-rewarding! Understanding exactly what is buy-to-let and the basics of this is essential to a successful arrangement.
What is buy-to-let?
Purchasing a property to rent out can be a great way of generating income and investing for the future. However, it is important to understand what this entails and what you are responsible for. Rather than simply owning the home, you act as landlord and are effectively running a small business. You can earn profit either through what your tenants pay, minus maintenance and running costs, or through the capital growth of the property when you eventually sell it.
Those interested in this arrangement are people who prefer more tangible investments and are patient with their finances. If you understand that property prices will change and are willing to risk your finances, as well as take on the financial and time costs of owning and maintaining a property, it could be a great option for you.
What is buy-to-let mortgage?
If you can’t afford to buy a property outright, a buy-to-let mortgage could be the answer. They are typically similar to a normal mortgage except with higher rates and more risk to the lender, as they are often relying on tenants to cover the mortgage. Buy-to-let mortgages also often require a larger deposit, typically around 25 per cent, rather than a normal minimum mortgage deposit of 5 per cent.
The amount of money you can borrow on a buy-to-let basis is dependent on a number of factors, such as your income and how much rent the property is likely to generate. A lender can help guide you and tell you what could be possible for you to borrow.
Could now be the worst time to buy-to-let?
With changes in the Government giving savers free rein to invest or spend pensions as they wish, experts are concerned the buy-to-let market will become flooded, increasing interest rates and competition, with investors possibly seeing their cash flow in the negative as early as 2017. It is important to consider whether this is the right move for you before committing to a property.
For more advice or help regarding buy-to-let arrangements, talk to a representative at Carltone, one of the best high quality residential and commercial property developers in Central and North London.
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