Buy to Let – A Good Idea In 2011?

Buy to Let – A Good Idea In 2011?

by Caleb James on 13 Sep, 2011

2005 to 2007 were good times for would-be investors to jump into becoming buy to let landlords. Now in 2011, the money to be made isn’t as easy. So is it still worth investing in a buy to let property.

On the positive side, buy to let property can still be a good long term investment but the boom years have disappeared and it should be viewed as a long term investment, not a ‘get rich quick’ scheme.

House prices are fairly stagnant so quick capital growth is not going to happen any time soon. However, mortgage deals are slowly improving again and rents and demand remain high. Existing landlords mortgages have now reverted to the all time low variable standard rate with their lenders and this has boosted profits massively. Those new to the scene will be benefitting from slightly lower house prices but expensive mortgage deals. If you are thinking of becoming a landlord, it should be with a view to long-term investment where income is from rental profit and any capital growth on the property is viewed as a bonus.

There are, of course, no guarantees with a venture like this as none of us knows what the future holds in terms of property values. However, with the stock markets looking very uncertain at present, some will rather trust investment in bricks and mortar.

Student lets are usually the first option for buy to let landlords. Students are happy to live with their new university friends and pile six or seven into a house with the benefit of relatively cheap rent per student. Landlords can convert most rooms to bedrooms and make a tidy profit on the rental income. If you are going down this route, you need to be aware that if your property is three storeys or more, with five or more tenants, you need an HMO licence (House in Multiple Occupation). Your local council will give you their individual requirements and will charge roughly £800 to £1300 or more. The licence looks after the health and safety of the ingoing tenants and requires the landlord to have certain minimum standards.

A student house ideally needs to be simple and functional. It will need to endure much wear and tear from student living so keep décor, kitchens, and bathrooms basic. A decked or paved garden is a good idea for minimum maintenance. If possible, provide a bike shed so these don’t end up in the hallways and ruin decoration.

Practical tips.

If you are serious about buying to let, here are some tips to help you make an informed choice:

Ask another landlord how business is going or if you don’t know one, talk to local letting agents.

Check where the demand for rental property is? E.g., town centre, near the universities, stations or schools.

Speak to at least two specialist financial advisers who deal in buy to let mortgages. Doing homework here can save you literally thousands of pounds. Ask about all arrangement fees and booking fees so you know the whole cost of the deal.

Ask several letting agencies what typical rentals achieved in the area are likely to be and what the expected occupancy rate is.

Do you have a fall back option if the property remains empty for two or three months?

Consider buying rent guarantee insurance in case the tenant defaults.

Another location may suit your budget, as properties in the north of England are much cheaper. Of course, you have to consider the inconvenience factor of travelling to and from the property for inspections or necessary maintenance.

Decide if you are able and willing to let the property yourself. A letting agent will charge you 10% to 15% but will possibly keep your property fully occupied and so saving money by trying to go it alone may be a false economy. Remember also that you can come up against many legal problems with tenants and a good letting agency will be very familiar with them.

You can find further advice here at the Residential Landlords Association www.rla.org.uk

About the Author

Caleb James


Caleb James is a financial advisor and journalist, who contributes regularly to financial blogs and industry publications.