For example, lets say you have £100,000 cash to invest into Investment Property.  Is it best to buy a property outright or use this money as deposits on multiple buy to let properties?

Mr Jones – decides to use his £100,000 to purchase a brand new property outright for cash.  He lets the property for £600 per month giving a return of £7,200 per annum.  Due to inflation, the rent will increase accordingly and eventually, after fluctuations in the property market, the house doubles in value.

Mr Smith – decides to use £100,000 as deposits (15% for each investment property) to buy £500,000 worth of properties similar to the one Mr Jones bought.  This results in Mr Smith receiving five times as much rental income, i.e. £3,000 per month or £36,000 per annum.  The other £400,000 is borrowed on buy to let mortgages and Mr Smith pays interest on this at a rate of approximately 5%.  These monthly interest only repayments would work out to be £20,000 per annum.  Therefore, net of interest they receive £16,000 per annum.  Mr Smith is already better off than Mr Jones….. but what happens in years to come?  Well it is probably safe to say that Mr Jones’s rental income will rise with inflation as per Mr Smith.  However, Mr Smith’s buy to let mortgage costs remain the same. Therefore, the gap between Mr Jones and Mr Smith’s rental income will continue to widen as time goes on.  And finally after 10-15 years when property could have doubled again.  Mr Jones would have made a capital gain of £100,000 and have £200,000 worth of investment property.  Whereas, Mr Smith would have made £500,000, which is five times as much capital gain!!

Best Buy to Let Mortgages

Finding the best buy to let mortgage is crucial to your success as a property investor.  Unlike other forms of investment, a lot of the money you put into a buy to let property is likely to be borrowed. Over the last few years, the buy to let mortgage market has boomed, and borrowing money to invest in this way has become easier than ever.   There are a number of different buy to let mortgage products available from fixed rates, discounted variable rates, discounted rates and so on.  Different products may be suitable for different investment properties. And don’t be tempted to just go for the cheapest buy to let mortgage as there may be penalties that make it less attractive in the long term. 

Always find out the best buy to let mortgage deals available at the time.  Some investors may decide to retain their entire portfolio with one lender, but it’s important to realize that different buy to let products between different lenders can provide you with maximum flexibility and cashlow depending on how you structure your funding.

However it is very important that you get the correct guidance with your buy to let finance.  You will often find that buy to let mortgage brokers have access to numerous different products and lenders and some can even offer exclusive products that wouldn’t necessarily be available to you if you approached the buy to let lender directly.

Questions that are worth considering when finding the best buy to let mortgage:

1. Do they have access to lots of different products in the market place?
2. Do they have the ability to create a long term property development strategy for you?
3. Are they able to secure Exclusive Products?
4. Are they able to arrange mortgages within 10 working days?

Most buy to let lenders will offer a maximum loan of 85% requiring you to fund at least a 15% deposit towards your UK investment property.  The buy to let mortgage industry is very competitive with new products being launched on a very regular basis.  

Some buy to let  mortgage brokers may charge a brokerage fee up to 2% to arrange the buy to let finance for you but don’t let this put you off because if they do have the ability to secure exclusive products for you, it could be very beneficial to your cashflow as a landlord.  Plus, if they are able to reach formal mortgage offer stage in a very short space of time, this could result in you being able to secure the investment property at very competitive prices if you have the ability to tell the vendor that you can have the deal completed within a matter of a few weeks.

How much you can borrow for the buy to let  property will usually be worked out differently to how much you can borrow to buy your main home.   Different lenders and different products carry different criteria for working out the maximum loans available.  Some will lend on how much you earn, others on the rental income you achieve from the investment property.  And sometimes a combination of the two.

How much rent will you make?
Before you agree on the purchase price of a buy to let property, it is important to find out from local letting agents, what the likely rent could be.  They should be able to let you know which types of property are in highest demand and which areas are the most sought after for tenants.   If you need to find out whether your potential buy to let is looking like a good investment, ask your broker/lender to work out the yield (ie the money you are investing and the rental income you will receive) on the property against what your repayments are likely to be.  I you are investing in an up and coming area, it could still be a viable investment despite the figures not looking too healthy today.  If you believe that the area will be having a lot of other investment or new businesses moving in, then there is the possibility that the surrounding property market will have a positive knock on effect.  When the valuation is carried out on the property, the surveyor who visits the property will also be expected to give an assessment of the expected rent as well as the value of the property.  A local letting agent is the best person to approach for this kind of information - especially if you hint that you might let them be the property’s management agent.   By Jennifer Tweed

 

Article Source:  http://www.articlematrix.com