Owning a second home or investment property has become a popular way of planning for retirement income throughout the Country, and especially so in Leicester. Not only does it provide a regular income, but it will most likely appreciate in the long term.
At Seths we have helped hundreds of landlords secure and rent out their investment property, which is testament to our local market property knowledge.
Whether you are buying your first or even your tenth property, there are quite a few factors that you need to consider.
Purchasing a second property now attracts additional stamp duty, so when making an offer on any property it is crucial you factor in the following:
. Survey Fees
. Solicitors fees including searches, etc
. Stamp duty
. Any improvement costs
What is Yield?
The yield is simply the return you are getting from your property. To calculate this, you divide the annual rent by the capital value and multiple by 100. For example, if your rental is £575 per calendar month (pcm) and the property is worth £130,000, then your yield is:
£575 x 12 = £6900 £6900/£130,000.00 = 0.05307 0.05307 x 100 = 5.307
Therefore, in this example, the Yield would be 5.31%
Furnished or Unfurnished?
By far the most popular type of letting that Seths carry out is unfurnished. Having said that, there is definitely a strong market for fully furnished lettings. Not only will you fetch more rent, but you may even let your property faster, minimising void periods. However, you have to offset wear and tear against that. In our experience, there can be good scope for furnished lettings in the upmarket sector (rental of £850 – £900 pcm plus).
If letting on an unfurnished basis, at the absolute minimum, we would recommend that you supply curtain poles /blinds.
The most seasoned investors listen to their heads rather than their hearts. Don’t forget what sort of property appeals to you to live in, may be completely different to what sort of property you need to buy to rent out. For example, large gardens maybe a boon to home owners, but may put off tenants who don’t want to spend their weekends gardening. Of course, we always say that keep your rental properties clean and modernised, as this will help attract quality tenants.
Should I Buy Cash or Take a Mortgage?
There used to be time when cash purchasers were king, but mortgages are the norm and these purchasers often pay slightly more. If you do have cash and are unsure, then you need to ask yourself, are you dependant on the income or can you leave it in the bank, pay the tax and let the rent pay off the mortgage. Also, do you plan to buy more properties?
For example, assume you have £150,000 and want to invest it (lets ignore stamp duty and acquisition costs for the sake of this example). If you buy one property, you may get approx. £600 per month and you may be happy paying taxes and not having to worry about paying a mortgage.
However, with the same amount of cash you could put down three deposits, take out mortgages and buy three properties. Although you probably won’t have any money left over every month (or possibly pay out of your pocket; see the taxation section), you will have three paid off properties at the end of the term. A word of caution though; if all three properties become empty at the same time, you will need to pay three mortgages. And there are repairs to think about too. Therefore, plan carefully.
Which Area Should I Invest In?
There are some investors who want to stick to tried and tested areas of Leicester such as Belgrave, Evington, Highfields, Clarendon Park, etc. They feel that these are safer in the long run. However, rental yields in this area tend to be below 5% at the moment due to high purchase costs.
On the other hand, there are other emerging areas within Leicester which will offer a similar rental, but at a lower purchase price, but offering you a greater yield right now. Browse online and drive around to see the various
areas in the town you want to buy. Remember in an area with lots of properties up for rental, you will be competing with others, meaning that the market may be over saturated and void periods may be longer than average.
Depending on your personal income, you may attract high levels of tax on your rental income, even if you are keeping it aside in a bank account and not spending it.
There may even be a scenario, where you are paying out of your pocket. For example, you have one property with a rental income of £600 pcm and the mortgage repayment is £475 per month. Although on paper, you have a surplus of £125 per month, if you are a high rate tax payer and the property is in your personal name, you may attract 40% tax. Therefore, out of the £600 pcm, after paying the 40% tax, you will only be left with £360, meaning you will have to pay £115 per month out of your own pocket. Add any potential repairs and / or void periods, and the outgoings could be considerable.
At the moment, many experienced landlords are contemplating whether they should buy properties in their personal names or set up a company. However, there are pros and cons to this structure. Therefore, dependant on how much you earn and how many investment properties you plan to purchase, we would recommend that you take specialist advice.
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As a landlord you have a duty of care for the welfare and safety of your tenants whilst in your property, and as such you have numerous obligations that you must carry out. Either you must be fully up to date in Letting Law, which is constantly evolving, or it would be advisable that you appoint a reputable qualified letting agent to safeguard your interest, and ensure that your property is compliant. Make sure that any agent you call out for a valuation talks to you about relevant certificates, safety reports, etc. By doing that you can ensure that any tenants that reside in your property are in capable hands.
Pre Packaged Buy To Let
Are you looking to get onto the investment ladder, but are too busy to hunt around for buy to let properties, and arrange mortgages, find agents / tenants, etc ?
At Seths we have a pre-packaged buy to let service where we arrange a meeting with you, note down your criteria and long term goals and find the property for you, even if it is not for sale with us. We can then arrange your finance through an Independent Financial Advisor and liaise with the solicitors during the conveyancing process, taking away the headache and stress normally associated with this. What’s more, we will start marketing your property before completion in the hope that we will have professional tenants ready to move in straight after you receive the keys.
Finally, I just wanted to say a little bit about Seths and what we do. We are an all service firm and do everything from sales and lettings, to commercial property, property management, rent reviews, surveys, development advice. The company was started 47 years ago, and we still focus on the same core principles as we did then - which is giving great service. In fact we do not refer to us as being in the property business - we always tell everyone that we are in the people business. It is only with great service that we get referrals and grow our company.
We are one of the leading independent letting agents in Leicester and manage hundreds of properties for our landlords throughout the City. We always try to source professional working tenants and even offer a FREE EVICTION SERVICE for the first 12 months, giving you peace of mind. If you require expert advice about the buy to let sector, please feel free to contact us. For a full list of our fees and services, please visit www.seths.co.uk
20 Loughborough Road, LE4 5LD / 0116 266 9977
Registered Office: 20 Loughborough Road, Leicester, LE4 5LD.
Registered in England & Wales. Company No. 3842698.
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