Bricks and mortar have long been seen as a good, solid investment, but is it the right time to start buying to let?
What is 'buying to let'?
Buying to let involves investing in a property for the sole purpose of renting it out. The practice is growing in popularity, and in 2012 the number of loans for buy to let properties reached an all-time high, topping an impressive 1.4 million.
This has been driven by a huge increase in demand for rented properties across the country, as lenders make it increasingly difficult for first time buyers to get a foot on the property ladder.
Is it the best investment?
Buying to let is significantly different to other, more traditional investments such as stocks, shares and ISAs. Whether it's the best option really depends on your investment goals. Shares tend to offer more short term benefits than property, and can be much more volatile.
That said, if you look at the performance of shares over longer periods of time, the situation changes again. The FTSE 100 index, for example, may have struggled in the recent past, but over the last five years it has steadily risen, with any crashes failing to completely wipe out overall gains.
When it comes to property, prices have also risen consistently for the past five years, with gains of more than 25% on average. Monthly rents have been rising too, and by renting out second homes it's easy to cushion the blow of any fall in overall prices.
What are the benefits/drawbacks?
If you think that buying to let may be for you, take a look at these pros and cons to help you make a decision:
The pros
- Low interest rates mean that your buy to rent mortgage will be more affordable
- If property prices rise, your investment will be worth more and boost your profits - remember, as the value of the property goes up, so should its monthly rent
- As investments go, buy to let is relatively simple and easy to understand
- Some of your costs can be offset against tax
The cons
- You will need to find tenants and ensure you don't have an empty property for long periods of time
- If you are unable to find tenants or secure a high enough rent, you'll have to cover the shortfalls between income from rent and your mortgage payments
- You will have to pay to maintain your second property, and correct any damage
- If you use a rental agent, you will have to pay them to manage your property, thereby reducing your potential profit
Is it for me?
Buy to let is an exciting investment, but before you jump in, ask yourself:
- Do you know the market? Ask other landlords about their experiences, research the best cities to invest, and find out more about the potential income.
- Who will your tenants be? If you're targeting students, think about a safe, central location. Young families, on the other hand, will love larger properties further from city centres.
- Are you in the right area? Look carefully at where you buy, and remember to think about access to good schools, shops, restaurants and other desirable neighbourhood features.
- Can you afford it? You need to work out exactly what you can and can't afford, bearing in mind mortgage deposits, renovation costs, and any other maintenance work that needs to be done before a tenant can move in.
If you're happy to do the homework, then buying to let could be the perfect investment for you. If you need help saving for a deposit for your first buy to let property, try our free Money Dashboard service, where you can set goals, manage your budgets and plan for your financial future.
