WHAT ARE THE RISKS OF BUY TO LET?

There are many risks involved in buying a property to let. Getting it right may not be as easy as it sounds. Even with the best advice and guidance there may still be other contributory factors, which may work together against you. If things do not go to plan you may find that your buy to let income does not cover your expenses.

Never put yourself in a position where a temporary reduction in rental income or an increase in costs is going to give you a problem.

Being in business will always have an element of risk attached to it and buy to let is no exception. If you expect the unexpected you should be able to cover yourself so that you continue to prosper.

No Rent

This should only happen for a short period between tenants and at most should only be a few weeks. However you may find that if there is a dip in the rental market then it could go on for months.

Always try to be one step ahead and consider lowering the rent you are asking. Some money coming in is always going to be better than nothing. You do not want to start paying you mortgage and other costs from your savings. Remember this a business and you are doing it to save money so you have to be smart. Take action early!

If you are not using a letting agent then do so, even if the rental income you get is going to be less than what you are used to. Before buying the property consider this issue very carefully and try not to take on a bigger mortgage than you can afford and try to build in an allowance for these void rental periods.

Extra Costs

Costs can rise for a number of reasons, such as unexpected major property repairs or maintenance, increased agent fees or bigger mortgage repayments due to interest rate rises. All these factors could contribute to the reduction of you real income from the property.

When you start your buy to let project try and take a sensible approach when considering the feasibility of your property investment. Build in a realistic value for unexpected costs into your budget.

When you get your mortgage try and get one with a fixed interest rate so your mortgage payments stay the same even if interest rates rise.

House Prices Stop Rising

This is perhaps one of the biggest risks you are taking, because if this happens then your whole strategy of making a killing when you sell could be in jeopardy. It could mean that you do not sell the property for the price you had planned and you could even make a loss.

Do some extensive research to see what is likely to happen in the housing market. You may find it might be worth staying put and waiting for the market to recover especially if your rental income is still good. If you originally took out a mortgage, which pays of some of the capital as well as interest, then this will help protect you from this situation.

Bad Tenants

This is a nightmare scenario that no landlord wants to experience. Tenants may consistently not pay on time or damage your property causing you increased costs. Alternatively they could just be nuisance or noisy tenants who cause trouble with neighbours. They may be so bad that you eventually have to evict them.

Make sure therefore that you carefully vet all and any tenants that apply to you to rent your property. Always take up references and don’t be shy from asking awkward questions if you feel you not getting the whole picture. If you can’t do this yourself then use a letting agency as they will be much more experienced in finding better tenants.

Always let your property using a  assured shorthold tenancy agreement as this will let you easily evict tenants with just two months notice.

Wrong Property

If the property is in a bad condition or in the wrong location then you can probably fix the former but not the latter.

Even if you improve the property to a good standard you may find that the cost of doing so is going to really damage you profits, so choose wisely before you commit to buying a property and get a structural survey especially if it is an older property. A surveyor will find things that you may not be aware of even after careful scrutiny.

The only resolution to the wrong location is to make sure that it never gets that far in the first place. Do your initial research very thoroughly before you even think about buying. Make sure all the amenities that a renter would want are in nearby. If in doubt, speak to a letting agent. They will have years of experience doing what you are trying to do.