Buy to let is a type of mortgage that may pop up quite often when considering offers from banks and other lending institutions. Such a property is self explanatory. You get a mortgage to pay for it, you buy it and you put it out on the market straight away. You find tenants and the property will pay by itself. Such a mortgage is considered an investment – usually a long term one.
Understanding the concept behind buy to let investments
Buy to let mortgages and classic mortgages operate on the same principles, but they are extremely different. A classic mortgage gives you a house to live in. You end up with a property that you actually make your home. On the other hand, a buy to let investment is a business. You are practically running a small business and it comes with a bunch of small responsibilities.
This type of property investment works by some simple ideas. You can buy the house yourself – assuming you have the funds. You can also come up with a deposit for it, then get a mortgage. Obviously, the mortgage deal and rates will be different from a classic mortgage. Just like any other type of mortgage, there is a risk involved, so you must make sure you have a realistic plan to pay everything back.
Unlike some expectations, you will have to pay the mortgage payments no matter what. If you have tenants, chances are they will cover the mortgage. These days, rental costs are higher than mortgage payments, so you may end up with a bit of extra too. But then, even if the tenants leave and you cannot find someone else to occupy the property straight away, you will still have to make your payments.
Once you get the funds and you purchase the property, you can make profit in two different ways. First, you have the rental yield. Tenants pay the rent and you will need to withdraw the maintenance costs. Agent fees may also be involved. You will usually end up with a small profit or get even. If you lose money on the deal, it will be an insignificant amount.
Second, you need to consider the capital growth. With time, you may consider selling the property. Considering the constant growth of the market, there is a decent chance you will sell the property for more than what you paid. If you manage to keep tenants in all the time and the property pays for itself, everything you make is pure profit.
Who are buy to let investments for
A buy to let property investment is not suitable for everyone and you need to understand a few things before making this big step. You need to be a fan of investments that feel a bit more tangible when compared to other alternatives – such as shares or stocks. You will have to tie up a big chunk of money for many years and you also have to understand that prices may go both up and down.
While the chances are relatively low, you need to be aware of the fact that you may not always earn a profit on this investment. Doing it right will almost always give you a good profit though. Then, just like any other type of mortgage, this one comes with some additional risks too.
Bottom line, a buy to let property investment is a good idea and it can make a good profit, despite implying running a small business, a property and maintenance. All these things will affect the potential return, but it is still a brilliant idea.