- Interest Only rates
- Finding the right tenants and protecting your investment
- Using the right experts (brokers, agents)
We asked our specialists over at Expert Mortgage Advisor on some financial tips for buy to let investors. You can see the results below!
Should you choose a repayment or interest only mortgage?
It depends on what your long term goals are as a landlord.
Nonetheless, the majority of landlords will usually opt for an interest only mortgage. The main reason is that your monthly mortgage payments are lower than if you were repaying the mortgage back.
Remember, on an interest only mortgage you’re only paying towards the interest of the mortgage. From a financial perspective, you can cash flow more each month, simply because your mortgage payments are lower.
On the other hand, if you’re aim is to own the property outright at the end of the term, then you may opt for a repayment mortgage. Bear in mind, your monthly payments will be higher, so you won’t generate as much cash flow as an interest only mortgage. The main advantage is you will own the property and benefit from any capital gain.
What yield should landlord’s aim for?
Most investors aim for a yield of 6% minimum. Anything above this is a bonus. Some landlords choose to convert properties into HMOs, which is the renting of each room in a property. This may allow you to generate yields of 10% and higher. We’ve carried out some HMO mortgages with yields over 20%! It’s important to bear in mind that this is only at full occupancy and landlords are usually responsible for the utility bills of the property.
Remortgage to keep your investment positive Buy to let mortgages will usually be fixed for 2, 3 or 5 years. Once the fixed term has come to an end the mortgage will usually revert to a higher interest rate. Due to the higher rates, your cash flow can drop dramatically. We’d always advise to remortgage shortly before your term ends so that your buy to let mortgages are always on the best rates possible.
It’s important to note that you can only remortgage if your property has equity or has increased in value (or stayed the same0. If your property value decreases then you will find it extremely difficult to remortgage.
How can you find the right tenants?
Finding the right tenant isn’t a simple exercise. Whether you use a letting agent or find tenants yourself, you’ll only really find out what sort of tenant you have a few months after they’ve moved in. That said, you can benefit from using letting agents as they will have to adhere to referencing checks and will carry out the viewings for you.
In addition, letting agents can sometimes offer rent guarantee protection. Each insurance provider has their own terms however the majority of rent guarantee providers will cover any rent arrears and carry out the eviction process from start to finish.
Using the right experts
Property can be expensive when things go wrong. From using the right mortgage broker, to landlord accountants. It’s always best to use someone that’s experienced and understands your investment goals.
We’ve seen far too many clients waste a lot of money before utilising our services as specialist mortgage brokers. Brokers may charge fees but the wrong mortgage could cost you thousands in the long run.
It’s also important to invest in an area you understand. If you wish to invest in an area that you’re not familiar with then you can utilise an investment or acquisition company. Local estate agents should also be able to provide you with a lot of knowledge.
This guest post was written by Expert Mortgage Advisor check out they’re blog to find out how you can get a mortgage with bad credit.