The easy way to buy-to-let. Landlord Rosie Millard says a new-build flat can be a winner despite all the bad press they get
01-28-2015
By Rosie Millard For The Daily Mail
An investment flat is worth the risk - provided you get your sums right, says Rosie Millard.
She says that buying new-build and off-plan can be a good option, despite the criticism this has drawn in the past.
Waterside living: New-build flats such as these in Brewery Wharf, Leeds, attract young professionals
We are embarking on a buy-to-let ‘bonanza’ - or so we are told. Figures out this week show stagnant interest rates on savings, and the fear of putting your money in anything else, are encouraging investors to snap up bricks and mortar.
Last year, the value of buy-to-let mortgages on new purchases rose to nearly £12billion, 25 per cent more than in 2013.
As someone who dipped her toe into the market the last time it was heating up, I offer the following guidelines for those of you who might be thinking about investing in buy to let for the first time.
Where do you start? First, you could buy something that doesn’t yet exist - the off-plan purchase.
You go to see a developer. They show you plans for a gorgeous one-bedroom apartment in a new block somewhere near a canal (nice developments always seem to be near water). The block is as yet a hole in the ground.
HOW TO MAKE IT WORK
DO
Make sure all your sums stack up before you invest, from the mortgage payments to the projected rental income.
Ensure your flat is safe. Gas certificates, fire-resistant furniture and smoke alarms are a must.
Get some good photos of the flat for marketing.
Ensure your tenant pays two months’ deposit, and don’t spend it.
Remember your legal obligations as a landlord.
DON’T
Think you will rent out your flat without a single void, ever.
Assume your buy-to-let flat will increase in capital value immediately. Think long to medium term.
Fill your buy-to-let flat with junk and old furniture.
Assume your tenants are going to look after your flat.
Make friends with your tenants. Keep it professional.
.
But should you plump for that, or the second-floor apartment in the converted Victorian terrace just round the corner which has been standing for 150 years?
In my experience, the new build has many advantages. Conversions can be lovely, but they can also be a nightmare, with issues about noise, stairs and facilities.
They weren’t built to be flats: they were conceived as single houses and they are always yearning to get back to that position.
Whereas a new building, which contains flats that were always imagined as flats, with a groovy outlook over a river, and a lift to boot - that’s what your tenants will want. Also, don’t bother with spare rooms. A one-bedroom flat is the easiest thing to rent by a country mile.
Another reason to buy off-plan is that, depending on the market, developers may sell at a slight discount - especially if you are first in the queue.
You generally pay 10 per cent at this stage and the rest on completion, which could be a year or more away.
Your early money will be a big relief to the developer, persuading others to buy and easing the developer’s cash flow. When it is finished you might well discover that the value of your flat has increased.
All you need is sackloads of patience to cope with the ‘snagging’ that always bedevils a new building. Pesky things which, at the start, refuse to work, from electronic garage doors to outdoor lights and carpets. Just be patient.
Alternatives on offer: This two-bedroom conversion apartment is part of an old pub in Bloomsbury, London. fyfemcdade.com. £599,995
How much fittings and furnishings should you buy?
Organise new curtains and carpets, and make sure the kitchen has a sparkling array of basics. Then get a good bed and a basic set of furniture, so if your tenant doesn’t want it, you can take it away without too much trouble.
Even if your tenant does want furnishings, leave the pictures, bed linen, towels and ornaments to them, so they put their own things in and feel at home. If you furnish, you can obtain a 10 per cent tax break on your rent to compensate you for wear and tear to the furniture. Now for renting it out.
If you have taken out a loan to purchase your buy-to-let flat, you should have done the maths and worked out that rental values in the area will mean you can a) pay your mortgage and b) have some left over for maintenance and those dreaded ‘voids’ when your flat is empty.
Most mortgage providers will want to know your rent comes to about 125 per cent of the cost of your interest payments. Calculating the ‘yield’ - in other words, the rental income as a percentage of the property price - is critical. A good annual rental yield is about 5 per cent.
Alternatives on offer:The Masthead is an attractive second and third-floor maisonette on the High Street in the seaside town of Aldeburgh, Suffolk. bedfords.co.uk. £395,000
Do you need a letting agent?
Agents are great, but can be pricey. If you just use them for finding a tenant, the cost will be less than if they are looking after the flat as well.
Don’t forget that you can also a) do the inventory yourself and b) provide the Assured Shorthold Tenancy Agreement yourself, which you can get from any legal stationer. This will save you a couple of hundred pounds.
The agent will market your flat, show tenants round, sign them up and - crucially - chase them if they forget to pay the rent. But you will have organised regular online payments, plus a guarantor, plus two months’ deposit.
You could, of course, advertise your flat on a site such as Gumtree, but always take someone along with you when you’re meeting a prospective tenant.
I’ve been lucky in London. My tenants have always been young graduates, or students, who aren’t yet ready to settle down but who want a decent home near the Tube with furniture that won’t collapse and walls that aren’t running with damp.
They stay for about a year or two, and then they move on. Meanwhile you are left with a concrete investment which, if you look after it, will look after you as the years go by.
Alternatives on offer: A duplex loft apartment in Cheltenham has two double bedrooms. knightfrank.co.uk. £250,000