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What do I need to know about buying a second property to rent out?

3 replies

LoveReading · 21/01/2011 19:25

If I use some money as a deposit, for a small flat and rent it out to pay the mortgage, how does that work, I have never done this before. I would also be buying a property to live in myself.

OP posts:
Chil1234 · 21/01/2011 20:28

Buying a property to rent out is a small business so approach it by having a business plan that sets out costs and revenue. Fiona Fullerton's book is a good one to get out of the library.

It's well worth talking to an independent mortgage advisor since a buy to let mortgage is a different product to a buy to live in mortgage. As well as cost of mortgage there's cost of maintenance, insurance, council tax and all other other expenses that you'd have as a landlord.

Once you've completely worked out the costs of your buy to let property then you need to compare that with the typical rent that properties in the area, same size, can attract. Bear in mind that your property could spend periods of the year un-let when you wouldn't be getting any revenue. It's rare to get rent 100% of the year. Good luck :)

palomadove · 21/01/2011 21:36

The rental market is buoyant at the moment, but bear in mind some experts say property will go down in value more. Plus, buy-to-let mortgages are expensive at the moment - so talk to an independent adviser as set-up fees and interest rates are relatively high.

If you have a good-sized deposit and are going into it for income rather than growth, it could be a good idea - but you will pay tax on the rental income, although can offset many costs against tax - the Revenue website will give you more information on this.

Also, it is a buyer's market, so take your time in finding a suitable property and haggle if you can.

Talk to rental agents and find out which would be the good areas - look for somewhere within range of lots of employers and close to good transport links.

Don't buy a one-bedroom property, and a newer build will mean less maintenance.

Work on letting 10 months of the year, and make sure you have a good contract drawn up. We use an agent to find tenants, but manage it ourselves, but live quite close by.

Keep good records - you'll need them for your tax return - and consider having a separate business account for the property rental.

Make sure prospective tenants go through credit checks, and ensure you comply with the law - you need a gas safety certificate, possibly an energy certificate and to put the deposit into a special scheme rather than hold it yourself.

Build in regular inspections of your property - e.g every 2 months. This allows your tenant to raise any issues with you, as well as you checking everything is ok.

Remember your tenant is your customer and worth looking after - we always leave a bottle of bubbly and "welcome to your new home" card when a new tenant comes in - the longer they stay, the more money you save on agent's finding fees and the risk of a void between tenants - although there seem to be more tenants than property available at the moment.

Good luck if you decide to go ahead.

CrispyTheCrisp · 21/01/2011 21:37

You will also need to factor in tax payable on your income

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