The Private Rented Sector (PRS) is expanding and Buy-to-Let mortgages allow property investors to acquire a mortgage to purchase a property to let out, with rental income covering mortgage repayments. If you are thinking about purchasing a property to let out, you should consider the benefits very carefully. Some of the matters you should consider are:
• The demand for rented accommodation in the area in which you are considering investing. In many areas, including popular inner city locations, there may be an oversupply of rented accommodation and therefore it could be difficult to let the property.
• The achievable rent and the amount you would need to charge to cover your mortgage and other outgoing costs.
• The profit margins.
• All costs like repairs and letting expenses - advertising and professional fees.
• How much of the year you can afford to have the property vacant. Every landlord should allow for about a seven per cent void rate for vacancies or turnaround times between occupants.
• The ability to pay your mortgage if the tenant stops paying their rent or you have an unexpectedly large repair bill.
• The sort of market you will be entering. Each has its own characteristics and particular benefits and problems.
• The potential investment return. You need to be realistic about the returns you will achieve. It is more realistic to expect lower short-term gains and higher long-term profits.
• Your degree of experience managing property and tenancies. The knowledge and skills needed to be a landlord are considerable.
Private rented sector markets and the relevant standards
When deciding to let you should consider what market you want to enter. Broadly speaking there are four PRS markets:
1. Renting to people on benefits.
2. Renting to students.
3. Renting to working tenants.
4. Renting to professionals & higher end market.
The type of property you own and its location may determine the market you aim for. Different markets will command different rent levels and will require different standards of letting. Some of the issues that you might like to consider are:
• Professionals will insist on higher standards and will expect showers and possibly en suite facilities.
• Renters whilst commanding a lower rent are likely to be more stable renters – young professionals tend to be more mobile and may lead to higher voids and increased re-letting expenses.
• Renting to students sees higher occupancy rates which can maximise income; however they may not fully understand their responsibilities and may not look after the property as you would wish. Renting to students is also likely to bring with it regulation pertaining to Houses in Multiple Occupation (HMOs) and licensing.
• Student lets may not extend for a full year.
• All renters will expect a high level of customer care from landlords with expectations generally rising in line with the amount of rent paid.
If you propose to let a mortgaged property, or a room within it, you will require permission from the mortgage lender.
If the property is subject to a long lease, permission may also be required from the freeholder before renting. This will be determined by the terms of the lease. Where these are not clear it is advisable to seek assistance from a lawyer or the local Housing Advice service.
A wide selection of books and manuals on renting property is available through the NetRent Store.