Residential buy to let is exactly what it says that you buy a residential property with the intent to let. A buy to let mortgage is to borrow money from a bank or lending institution to buy the property for rental purpose. The best time to buy a residential property to let is when the banks are offering low interest rates. Before jumping on the wagon to buy to let you have to examine different factors. Ensure that the investment to buy or enhancing your income on a buy to let is better as compared to low saving rates. The income investment also keeps you free of the risks of stock market fluctuations.
BUY TO LET VERSES RESIDENTIAL MORTGAGES
You need to know that buy to let mortgages are different from residential mortgages. The three major differentiating reasons between the two are that firstly, the interest rates for buy to let mortgages are usually a bit higher than residential mortgages. Secondly, you are required to make a large deposit of normally ranging from 20% to 25% of the propertyÂs market value. The third most important factor is that the evaluation process of qualification for the loan is based on the possible rental income that shall be generated from the property.
The lending institutions do not bring your personal income into the equation.
Therefore, it is paramount to ensure that the buy to let property can be rented out yielding reasonable income to satisfy the lending institution.
Residential buy to let mortgages have additional costs that will be incurred when managing a property. In addition to mortgage repayments, you have to be certain that sufficient gross rent is generated from your property to make the repayments and manage the running costs.
The letting agents who are responsible for finding and venting tenants charge a fixed percentage of the monthly rate. You will also need to cater to the cost of maintaining the property and all the appliances, purchase and furnishing of furniture, decorating and regular renovation and legal insurance expense in case of non-payment and eviction of tenants.
A good benchmark is to aim towards achieving a gross rent of 130% of the rental landÂs monthly mortgage repayments.
DO YOUR HOMEWORK
It is understood that the banks base the loan approval on the assessed rental income. Hence, you have to make sure that but to let property will meet the required conditions. In real estate the three things to look for when buying a property are location-location-location. Similarly, for buy to let pick a promising area with a potential where people would like or prefer to live. Like areas with colleges and universities and where students, institution staff and faculty want to live.
Next, do the calculation that the large deposit tied up in buy to let property yields more income as compared to existing rates circulating in the financial markets. Consider the loss if the property suffers a few months non-occupancy. A possibility of property needing some repair or renovation work.
Finally, use your option of hunting for the best possible deals offered by the lending institutions for residential buy to let.