| Buy-To-Let |
 |
 |
 |
|
The buy-to-let market is primarily the purchase of residential property to let. The development of the market is partly due to the new loan products offered by Banks and other financial institutions in recent years. The simple principle behind the buy-to-let concept is for the tenant to buy the property for the investor over a period of time. Investors in a rising market can also, over a period of time release equity from a property in order to purchase another, beginning a portfolio of properties. In the buy-to-let market, the property is usually let on short-term leases or tenancies and therefore the condition of the property is critical. The investor does not want to be spending a lot of money every year on maintenance. It must also be remembered that the worse the condition of the property the lower the rent achievable and the longer it takes to recoup the investment. The investor should also build into the equation the costs of refreshing the property every three to five years if top rentals are to be achieved. The investor must consider whether the property should be let on lease or tenancy. There are both pro's and con's for both leases and tenancies, with a lease the benefit is that the investor has greater certainty of continuity of rent, but against that is that he or she is constrained by the length of the lease as to what he can do with the property. Where there is a tenancy the investor may have more flexibility in his letting and can terminate a tenancy more quickly, but against that the investor can lose a tenant more quickly than under a lease and thereby may have greater exposure to void periods and therefore, reduced yield. The quality of the lessee/tenant is important and it is essential that the investor takes proper references before accepting a lessee/tenant including in all cases a credit check and banker's reference. The investor must, in the same way as a commercial investor, look at the yield or return that he wishes to receive and, in particular, must build into his figures the costs of maintenance, administration, rates, income tax, void periods and damages to the property by a lessee/tenant and should also build into his figures the cost of purchasing the property. Taking a deposit can sometimes protect against repairs for damages and unpaid rent, however more often than not where there is a problem tenant, arrears of rent can build up in excess of the deposit before the investor is fully aware of a problem. When things go wrong, the buy-to-let investor should be aware that eviction proceedings before the Court can take time and be costly as to legal fees. The Courts have a discretion to allow a lessee/tenant to remain in a property for a period of time, dependent on the person's circumstances and therefore the investor may not get the property back immediately if he has to evict a problem lessee/tenant. A tenant with a young family or someone with health problems that needs to be re-housed by the Population Office may be given extra time in the property by the Courts and the investor may not recover all or part of his legal costs. |