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Buy to Let Mortgages for the First Time Landlord

If you live in a university town such as Stafford, Bradford, Cambridge etc and you’re looking to make a few investments, why not consider a buy to let mortgage? Not only will you be helping out the students in your city, you can also make money out of it!

A buy-to-let mortgage is designed for those who would like to invest, but don’t trust the up-down nature of the stock market. A person can buy one or more properties and let them out to students, or other tenants, who then pay you the rent that pays off the mortgage.

BTL mortgages differ in small ways from a standard occupants mortgage. The interest rates tend to be higher, the terms can range from 5 to 45 years, and the borrowing limit is typically capped at 80%.

If you like the idea of being a landlord and investing in the property market, firstly decide what sort of tenants you’d want to attract and this will give you an idea of what type of property to look for. To use the earlier example, student accommodation is usually best in a building with 2 reception rooms and at least 2 bedrooms, a large kitchen and preferably two WC’s (for obvious reasons!). If you can get a property with ample parking, so much the better. The more features a property has, the more rent you can expect.

In a university town there will be many student accommodation properties around, so try and contact a couple of the landlords to ask their advice about BTL mortgages and the rent they charge. With so many students you won’t have to worry so much about competition as there’s always demand for more and more ‘digs’.

Remember that if you do purchase a student accommodation with a BTL mortgage there will be periods between tenants – such as the University holidays – where you will have to make the repayments yourself. When you look for mortgages, consider how much extra you could charge for rent to enable you to save some money to cover the empty periods.

As well as covering the repayments, the rent you charge needs to be enough to cover any repairs you may need to carry out, and also your landlords insurance. If you find a property which is structurally sound and in a good state of repair, the chances are that unless you get unlucky with your tenants, you won’t need to do much on the building in the first few years. You will be responsible for any ongoing issues such as the boiler inspection, council tax, TV licences etc, so reflect these in your rent. This is where the larger properties have an advantage as they can take in more students.

Prepare Well Before Plunging Into Buy-to-let or Becoming a Landlord

Recent research from the Association of Residential Letting Agents shows that 40 per cent of existing landlords are planning on making more acquisitions during 2008. But, potential landlords should consider many different factors before committing to letting a property. Performing a full risk assessment and being realistic about the finances required to pay for and maintain the property is essential.

Unless you own a property outright, then you need to consider the best way of financing its purchase. Until recently there were thousands of different buy-to-let mortgage products available throughout the UK, but since the credit crunch, many have subsequently been withdrawn. Those that remain have tighter lending criteria and therefore come with quite stringent conditions. Ensure that you shop around before committing to any lender, and don’t settle for the first offer before checking out others. It may also be wise to opt for a fixed rate buy-to-let mortgage as you can plan your expenses for a fixed period with a degree of certainty.

Being able to withstand a period of non-occupation, or non-payers is also an important consideration. If you can only afford to enter the buy-to-let market based on 100% occupancy of the property, then unless you are extremely lucky you will come unstuck at some point. Many experts recommend incorporating an average two months of non-occupancy when calculating your costs. Also, if you are employing a letting or property agent you will need to include their fees in your costs.

Insurance is vital. If you don’t own the property outright, your lender will insist that you have buildings insurance to protect their asset, and similarly you should seriously consider landlord’s insurance to protect you and your investment. That applies especially if you have a portfolio of properties, or if your property is one of a number in the same apartment block where there are other landlords. Indeed, you and your fellow landlords could pool your purchasing power to leverage a better deal from insurers. Buy-to-let insurance is a specialist product and some insurers in that sector offer complimentary add-ons such as tenant referencing services, which are very useful when it comes to assessing potential tenants.

Buy-to-let insurance can also protect you against owner liability claims, and no-one should seriously think about becoming a landlord without being adequately insured – both against liability claims and for protection of property.

Another important consideration is ensuring that you put aside a sum for regular and emergency maintenance. Things will go wrong and it is best to provide for it up front. Having adequate insurance will also help in emergency situations. Older properties generally require more maintenance so consider that before buying.

So, if you are thinking of becoming a landlord, make sure you assess all the risks, do your research and ensure that you are realistic about what to expect.

Tax deductions for landlords in the US

If you are a first time landlord you may be concerned about the amount of taxes you will owe the IRS this year. Fortunately though, several tax deductions may considerably cut the amount of taxes your owe. Knowing about these tax deductions first hand will be a must, in the meanwhile, hopefully you have held on to several receipts and have other important documentations handy!

1) Interest on your mortgage payments

Yes, even as a landlord the interest you pay on your mortgage (supposing you are paying a mortgage) and the property taxes will be tax deductible. Your bank or loan company should send you the appropriate form at the beginning at the year so you can present it to your tax preparer. If you lived in the home for a part of the year and then rented it for the rest, then you must divide up the taxes and mortgage payments accordingly.

2) Insurance premiums

As a landlord you probably have some sort of insurance to protect your rented property and its tenants. If so, your landlord insurance can as well be tax deductible.

3) Depreciation

The truth is that all properties wear out. It is calculated that every year for 27 1/2 years the property will undergo significant wear and tear. This is seen as a loss and allows landlords to get a tax break from their yearly rental monthy income . However, there is something on your property that will never depreciate regardless of the passage of time and that is land.

4) Repairs

If you repaired that broken window or that jammed door keep the receipts handy as they are tax deductible. Other various expenses are deductible as well such as landscape work, carpet cleaning, winterizing your home and pest control.

5) Travel Expenses

Do you travel back and forth to collect rent, do repairs or inspect the property? If so, the gas mileage and vehicle maintenance costs are also tax deductible. The tax deductions are valid also if you travel from out of State or even overseas.

6) Office Space

If a part of your home is used to operate your rental property this can be tax deducted just as if you own a business.

Tax deductions may sound complicating and particulary intimidating for most first time landlords. As a first time landlord, you may want to hire a professional in order to avoid being audited. The good thing is that should you decide to hire a certified public accountant experienced in real estate, this expense can be tax deductible too!

Buy-to-let value soaring

It is hardly a secret that the scale of buy-to-let has been growing rapidly in the UK in recent years, but the latest research indicates this is showing no signs of slowing down.
Sainsbury’s Bank carried out a survey of the industry over the year between November 2006 and November 2007, in which it found the aggregate value of buy-to-let properties owned by landlords had risen from £571.38 billion to £641 billion, which equates to an increase of £5.79 billion per month.
Commenting on the figures, the head of home insurance for Sainsbury’s Finance, Steve Johnson, stated: “People have invested a huge amount of money into this sector and as a result of rising house prices many have seen the value of this investment grow substantially.”
Figures such as this suggest that there is no sign yet of a slowdown in investment, given that the period covered includes several months after the onset of the credit crunch, when the overall property market was clearly slowing down. What is undoubtedly the case is both that the total value of these portfolios has risen in recent years through both price growth and higher amounts of initial investment.
The latter fact is borne out by a further finding of the Sainsbury’s research, which showed that buy-to-let mortgages grew by 98 per cent in the three years from the first half of 2004.
Of course, some will wonder out loud whether such an upward trend might continue through slightly tougher times. The answer, according to recent surveys, is yes. The Association of Residential Lettings Agents survey last month revealed two key findings in this regard. Firstly, that nine out of ten landlords planned to hold on to their investments for the long-term, which means that periodic downturns in the market are of less significance than would be the case for speculative investors looking for quick gains. Secondly, four out of ten respondents said they planned to add to their portfolios this year.
In any case, there may be good reasons to believe the overall property market is bouncing back, with increased affordability making buying, whether residential or buy-to-let, cheaper than last year. The Council of Mortgage Lenders has commented today that slower property price inflation and falls in interest rates will improve this situation. As director general Michael Coogan stated: “Affordability has been stretched further in 2007 but the recent base rate cuts and the expectation of future cuts will ease debt servicing burdens in 2008.”
One blot on this horizon may be the spectre of inflation, with the Office for National Statistics revealing today that the consumer prices index rate had increased from 2.1 per cent to 2.2 per cent last month, mainly due to rising petrol, fruit and furniture prices. How much of an effect this may have on interest rate policy may not be clear. In its statement after cutting the base rate last week, the monetary policy committee said it had to “balance” the various risks of higher inflation now against the potentially deflationary effects of lower growth.
In acknowledging that food and fuel could have an upward effect on inflation but that the impact of these factors “should begin to fade later in the year”, the MPC may have factored this scenario in, accepting higher inflation in the short-term in the expectation that it will fall without requiring a tighter monetary policy. This view would be in line with that stated in the November 2007 quarterly inflation survey.
The next such survey, as it happens, will be published tomorrow. Its projections, which the MPC will already have seen, may make clearer to the wider world what is expected to happen in the months ahead. It could well be that the decision made last week reflected an optimistic longer-term outlook. In the meantime, the optimism of buy-to-let investors over their long-term prospects has remained strong.
In today’s world Property investment is an excellent investment option especially investment in UK