Buy To Let Still Attractive But Understand The Risks

Despite the downturn in the housing market, an investment in property can be a long term route to financial security. If you just think about how much your parents paid for their home and how much it is worth now, you can see the potential.Of course, simply living in a property long term does not really represent an investment in property. The main difference between simply owning a property to live in and investing in a property is that with an investment, you are buying for the purpose of making a profit – one where you can make use of the money.

One way to do this is by investing in a buy to let. This is where you buy a property with the intention of renting it out, and you hope that the incoming rent will pay for all outgoings (e.g. mortgage repayments and other expenses), giving you an ongoing income. In addition you hope to make a profit on the purchase when you sell a few years down the line. Many costs can be offset against tax.

Buy to let mortgages are readily available and are a cheap way to borrow money – even in these days when mortgage costs and interest rates are on the rise. It is important to be aware that there is no guarantee that you will be able to rent the property out without void periods, and there is a lot of effort in being a landlord and making sure that you have happy tenants.

The buy to let market is still viewed as a route to riches. In the long run it may be, but there can be short-term pain, and anyone new to the market should follow a strict and careful path. Buy-to-let is a business and as with any business the figures should work.

Traditionally, a buy to let investor would put down a deposit of 15% minimum for a buy to let mortgage and ensure that rental income would achieve 125% of the mortgage repayments. Up to the advent of the credit squeeze in the UK, competition was so tough between rival providers that they eased their qualifications for a buy to let mortgage, shifting buy-to-let from a soundly based business to something more like a gamble on rising house prices delivering capital growth as rental income was too low to cover outgoings. Anyone investing in those circumstances might now be having some difficulties as house prices have come down, rents have barely moved and mortgage costs continue to rise. It is not a place for nervous novice investors at the moment.

The purpose of the investment should be to make some money above the level at which you could make it by earning, saving or even putting in your building society account. With the possibility of making money from any investment comes a level of risk. So although you might make money, you might lose money too.

It is important to manage the risks, which means reducing exposure by having sufficient knowledge about what you’re doing to reduce the risk. The sums of money involved in property investment can be large, so it is important to take the management of risk seriously.

About the Author

An author on a variety of property related subjects, which include mortgage rate reviews and detailed analysis of the role mortgage brokers provide in the current climate.

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