Going through the Maths
The concept of real estate letting involves charging a lot more in rent compared to the property costs. Once you are sure that all the charges of owning as well as letting your house have been acknowledged, it’s just a simple matter of adding them all up and deducting the total from the typical rent for similar properties in the area – the big difference is called your ‘net rental income’. This will likely provide you with a good idea
whether letting is feasible.
Nevertheless, you will probably find that the expenses are greater than the rent you’re most likely to achieve. In such a situation, you will need to either reduce costs everywhere feasible, increase your rent above the average for houses to let in Dover, or accept the fact you will have to soak up a loss on your property. Naturally, there is always the choice to sell your property and search for a far more appropriate letting opportunity.
A lettings agent will be focused on achieving the maximum net rental yield, which can be best explained with one example.
You charge £500 per calendar month for your property, which provides you £6,000 of rental income. Nevertheless, after adding all your expenses – calculated at £5,000 – and subtracting these from your rental revenue, you will be left with a net rental income of just £1,000 per year.
Buy to Let Mortgages 2014
Negative aspects of Buy to Let
Many people get fired up at the thought of investing in an additional residence, and there are numerous newspaper reviews around telling you it’s a great idea. However, there aren’t enough reports explaining the downsides of buy to let, as a result here’s a list to ensure you understand what you are up against:-
Property prices could fall by as much as 20% – therefore be sure you have a back-up plan if it takes place.
Rents can go down by up to 20% too – so ensure you continue to be cash flow positive in cases like this.
You may have a low interest rate of around 2.5 to 3.5% but when interest rates go up, rates will probably be around 5% long-term and could achieve 7%.
Tenants may well not pay their rent – do you have savings to cover costs if this takes place?
Renters might cause serious malicious damage to your property – be sure you reference tenants precisely, don’t opt for cheap alternatives.
Rewards of Buy to Let
Despite the fact that you will find negative aspects to buy to let, you will find rewards too. Capital growth, on average, is around 4-5% per year in many areas over time, so preferably, it is advisable to purchase a property where one can ‘force’ capital growth by means of improvement or adding space to ensure that you get an instantaneous uplift in value. Additionally, if your rental income is 7% plus, you then could possibly make adequate finances to cover all your expenses and net some extra money.
For the future, property price increases are anticipated to be from 4 to 8% for 2014 and the same for 2016, as a result use these figure to understand exactly what the household investment is likely to produce over the next year or two. To be sure you analyse any discounts by using our checklists.