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Unpacking The Buy To Let Investment Model

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December 12, 2013 (www.investorideas.com newswire) Property investment is one of the most popular ways to make serious money in the UK. Buying property in both residential and commercial markets can be a good investment, particularly given the current state of the market. With prices rising and demand firmly returned to pre-crash levels, there has never been a better time to get involved. The buy to let model is one used by property investors across the country, and indeed the wider world, to achieve the maximum available yield from the property concerned. But how does the buy to let model work, and what are the considerations and factors that require particular attention?

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The buy to let model relies on renting out the investment property after you have purchased it. The sole purpose of the investment is to create a rental asset, which will both cover the mortgage and yield a profit. Many buy to let investors choose to do so with the support of interest-only mortgages, which keep monthly repayments as low as possible. Rental yields are then used to pay off lower repayment costs, yielding a more generous return month on month in perpetuity. At the same time, any upwards pressure on house prices will lead to capital gains. Of course, losses are equally possible.

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If you are investing in a buy to let property with a mortgage, it is important to make sure you price the rent according to your repayments and a defined monthly margin. Try to pitch as close to market rents as you possibly can. This Plymstock estate agent's website will give you an idea of current prices. Using this information can improve your chances of finding a tenant, and securing the rental income that is essential for this business model to work.

The success or failure of your buy to let investment will turn on the tenants you are able to secure. Tenancy agreements are a must, as is vetting any potential tenant who wants to live in your property. A security deposit is industry standard, usually equal to around one month’s rent, which can be used to pay for any damages or rent arrears arising with a particular tenant. It is also wise to familiarise yourself with the law relating to landlords and tenants, and your obligations under it. These can also manifest as additional costs, so it is important to know where your liability starts and where it ends, as a buy to let investor.

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Buy to let property investments can pay off for those who make the right choices, but it is by no means an easy route to fortunes. The difficulties of finding reliable, creditworthy tenants are compounded by the need to set a competitive yet profitable rental rate. Further, the obligations that come with letting out a property mean that your margins suffer, especially when there is major repair work or a home appliance in need of replacement. Buy to let can work, but only those who appreciate the challenges can hope to be successful in the long run.

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