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Why buy into lettings market

Date Submitted: 04/07/2012   Author: Robert Macfarlane

It comes with no guarantees of course but for those who have more faith in bricks and mortar than other investments it is worth serious consideration. In the short term prices may slide but as a general rule property has never failed to be a good long term investment. It must be remembered deposits can vary but typically you could be expected to have 25 per cent or more as a deposit.

Once you have your mortgage sorted out be careful to allow leeway for rate rises in years to come. The current bank base rate of 0.5 per cent will rise in due course.

Where to buy

Many new landlords make the mistake of thinking would I live in my investment property the simple answer is to put yourself in the shoes of your target tenant. Perhaps if they are students they would want it clean and comfortable and in a good location relative to the university and local transport links.

Young professionals may require the property to be modern and stylish. A family will have their own belongings and may wish to decorate some rooms to their taste to make it feel more like a home. These tenants will stay for longer which reduces voids and keeps the rental income stream flowing.

Currently the market is all about rental income. Some years ago it was about both capital growth and rental income. In the short term capital growth cannot be relied upon.

What to buy

While demand is good generally at the moment two bedroomed houses are proving to very popular with tenants. That is good news for landlords as typically houses fitting the bill in the local area can be purchased from around 95 to 125k.

At the other end of the scale it clearly makes no sense in a landlord buying say a four bedroomed house for around 200k when rental yields and demand are considerably less. With any investment it must be remembered running costs will be incurred.

These can be maintenance mortgage payments fees insurance etc. Most costs can be offset against rental income and this will reduce any income tax liability.

It is advisable to have an emergency fund if possible to cover the unexpected. That once reliable central heating boiler may decide to pack in and costly repairs or replacement may be required.

Can I get a discount?

A buy to let investor is similar in many ways to a first-time buyer. They are not involved in a chain and as such there is less chance of the sale falling through.

Be prepared to haggle.

It is still a buyers market out there. Offer a low price to begin with to test the water.

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