The current financial climate is forcing people to rent. There have therefore been many recent reports of an increase in landlords applying for buy-to-let mortgages.
"New landlords need to do their research into how much it's
really going to cost , comments Robyn Lowe who deals with
lettings at Blair Cadell.
"More people are considering investing in buy-to-let. It is surprising how many people only take mortgage repayments versus rental income into account when looking at affordability. It would appear that they fail to remember that where rented property is concerned there is a need for continued, long-term investment in the form of maintenance, repairs and renewal.
We have seen a significant percentage of new buy-to-let landlords selling their properties again within a couple of years, simply because they have underestimated the costs involved. Others end up in court, chasing their tenants for unpaid rent which is being withheld due to lack of maintenance. Landlords must remember that buy-to-let is a business and must be treated as such. Before you decide to start such a business make sure you do your sums properly. This involves drawing up both a long and a short-term investment plan."
It is common for buy-to-let landlords to hold their properties for 10 years or more. In this period of time a landlord should expect to have to invest in one kitchen and bathroom refurbishment, probably three complete redecorations, and maybe replacement of all the carpets. These are essential in order to order to maintain capital and achieve the best rental. These can be expensive and need to be allowed for when setting out the initial purchase plan.
Blair Cadell Edinburgh estate agents can provide some assistance with costings but it's up to the landlord to decide if they can then afford the property as an investment. We would advise to only ever budget for 10 months a year rental income which allows for void periods. You should also allow 10% for planned and 5% for unplanned maintenance as well as 10 - 15% for agents' fees (ie on a rent of £10,000 a year, £1,500 should be allowed for agents fees, £1,000 for planned maintenance and £500 for unplanned maintenance - a total of £3,000, leaving you with a monthly income over twelve months of approximately £575).
You should also make allowances for buildings insurance and utility bills while the property is empty, an annual gas safety check and the initial set-up costs for the inventory. If the property in question is a flat, there may also be an annual service charge.
"Realistically the highest mortgage repayment you should entertain should be no more than 65% of the rental income and probably closer to 50%.
Proper forward planning can help build stability in the market - which in the long term will benefit both landlords and their tenants."
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