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Buying To Let: Is It For You?
by James Smiths |
| If you read the title of this article and thought to yourself, "Let what? What am I letting happen buy buying? And what am I buying?", than this article is definitely for you. First let me establish that the "buy" refers to a house and second, the "l .. |
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If you read the title of this article and thought to yourself, "Let what? What am I letting happen buy buying? And what am I buying?", than this article is definitely for you. First let me establish that the "buy" refers to a house and second, the "let" part, that refers to renting that house out to someone else. Basically it means that you buy a house and let someone else pay the mortgage and live in it. There are, as with everything, some really good aspects of this kind of arrangement, and some really bad ones as well. This is not an agreement to enter into frivolously for if you do, you very well may regret it for the duration of your mortgage.
Basics of the Buy To Let Agreement
Buying to let, or buying to rent, simply involves a person finding a house, signing for a loan, and then immediately renting it out to someone else. The house is in the buyer's name, but then it is contractually signed over in a rental or lease agreement to a tenant.
Why Would I Want To Do This?
This is a great way to generate some extra cash flow, buy a house to later sell for profit, or buy a house to later dwell in yourself.
Extra Cash Flow
When you make the purchase of a house in order to rent it out to someone you go through the loan process just like with any other house. Once you have established the mortgage payments that you will owe every month you then can set the rent price. The rent price is set by you and can be whatever you want it to be. If you are paying $500 per month and want to rent for $800, you are making $300 profit every month. You can set the price of rent to whatever you think that the market will bear.
Buying For Selling
You can get an interest only loan, the kind of loan that typically has the lowest payments for the first few years, and buy yourself a house to rent. Assuming that instead of those $500 payments per month, and now your mortgage is only $400, but you are still charging $800, you will have a lot of money to put back into the house each month. You can, instead of spending or saving the profit from the renters for personal use, put it right back into the house in the form of repairs and upgrades. The renters think that they are getting a good deal because you are constantly doing good things to the house that they live in. You will be thankful and grateful to the renters because they will be paying for your mortgage and for the repairs that you are doing. After a few years you can sell the house at an inflated price cue to all the things you have done to it and you can make a lot of money on the deal.
Buying For Living
If you don't have the money just yet to make the mortgage payments than perhaps you could consider renting your property out for a while until you can get to point where you can afford to live in it. Or, perhaps you want to buy a summer home but don't have the means to do so. You can buy now and rent it out until you have the resources available to take on the extra mortgage payments yourself.
If it sounds too good to be true…..
Renting isn't the wonderful, astonishingly simple way to make hordes of extra cash and become the next big real estate mogul. There are some negatives to it as well.
Landlords and other bad things
If you buy and rent out a house, you are the landlord. You have to make sure that the tenants are paying rent on time, you have to fix things that break or, if you can't fix them, you have to pay to get someone to come out and fix them. You have to make sure that you have tenants that are not going to tear up the house and leave it is shambles when they leave, especially if you are renting in order to later sell for a profit. Any landlord will tell you that renting to good tenants is a great experience, but renting to bad tenants, nothing could be worse. If you don't get tenants that will treat the property just as good or better than you will, than you will probably end up losing money on the deal.
What next?
If you feel like the role, or should I say, job, of a landlord is for you, than go out and start looking for someplace to buy. Make sure that you have a clear idea of what it is that you want to do with that property and get the loan that is most appropriate for your situation. If you don't think that you will do well getting called to fix the roof, seal the plumbing, spray for termites, or any of the many other things that have to be done for a house, than maybe you ought to stay away from being a landlord. Perhaps the only thing worse than renting to bad tenants is renting from a bad landlord.
Interest only Mortgages and Fixed Rate Mortgages for many years.
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