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A recent study by Homelet showed that rents in Edinburgh are among the highest in the UK, with rent costs taking up on average 47% of Net Income. In many ways this puts budding landlords in a strong positon - but being a landlord is a business and should be treated as such. Buy-to-let mortgages must be taken seriously, particularly for those starting out on the property ladder.
"New landlords need to do their research into how much it's really going to cost," suggests Jacquie Macdonald, Head of Corporate Development at Blair Cadell Solicitors.
"Many people considering buy-to let mortgages only take mortgage repayments versus rental income into account when looking at affordability. It is important 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.
"Underestimating the costs involved can see buy-to-let investors having to sell their properties only a few years after purchase. 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."
"Landlords should expect to have to invest in one kitchen and bathroom refurbishment in a ten year period - the cost of redecorating/replacement of tired carpets will also have to be factored in. 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.
"At the end of the day it is 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%.
"Good planning can help build stability in the market - which in the long term will benefit both landlords and their tenants."
Blair Cadell are a leading firm of Edinburgh Solicitors dealing in a wide range of property, business, tax and personal legal services. Call us today to see how we can help you in 2015.