Buy-To-Let Investments – What You Need to Know
Buying property with the intention to rent it out can be one of the best strategies you can use to climb the property ladder.
If correctly-managed buy-to-let properties can be one of the most attractive investments and profitable opportunities out there.
For a relatively low upfront cost, buy-to-let investments can generate good long- and short-term returns in the form of capital growth and rental income, and their gearing potential – something unique to property investments – can be leveraged for continued expansion within the market.
If you ever considered investing in buy-to-let property, here are a few benefits for you to look forward to when making this investment:
There is a relatively low barrier to entry
Investing in residential buy-to-let properties only requires you to have to come up with a deposit. If there is no renovations, and assuming you can get a good tenant, or short-term lets, after that your mortgage pays for itself (rental from a tenant). There is no other investment class that can compete with investing in residential properties, especially in properties located in very good areas. Areas close to economic activity always lend themselves to people looking for a rental property.
Your tenant pays for your investment
Simply put, the buy-to-let property formula works like this: you purchase a buy-to-let property with five to ten percent of the purchase price in cash, you then take out property finance for the remainder of the purchase price.
After you get tenants to occupy your property, you then get them to pay rent which covers your monthly bond and levy costs. You may have to subsidise the rental payment for a few years until the rental income increases sufficiently to cover all your costs.
In turn you watch your investment grow in value while your tenants pay off the majority of your bond. Once your bond is paid off it then becomes a consistent monthly income.
You could retire early
Depending on the amount of revenue you will be making on your buy-to-let investment, you can be so much closer to reaching a point of financial freedom, retiring earlier than you thought, or building a nest egg for your retirement.
Inflation works for you
In Africa, we are seldom spared the threat of inflation. It is about as certain as death and taxes. If you are investing in a buy-to-let property though, this could make for a good tax write off. As inflation prices rise, so do salaries, rentals and property values, but your bond debt freezes at the original rand amount. Resulting in your being able to increase your rent, without it affecting your income.
What to look out for?
Although buy-to-let property investments comes with benefits to help make your money grow, there are still some risks to look out for:
- Sometimes the property market can be quite unpredictable, property prices may go down unexpectedly.
Buy-to-let requires continued investment through essential maintenance, this can result in your incurring more expenses along the way.
- Finding reliable tenants can sometimes be a hassle. Tenants not paying rent could cause you to lose your property if you cannot cover the cost of your mortgage and default on payments.
Tips to help you make the best investment decision:
- Don’t buy an elaborate house; instead invest in a 2-bed apartment, close to schools, universities or relatively close to interesting attractions as well as transport – as you could rent out the property short-term to holiday makers, which could also help you charge more rental.
- You don’t have to get the apartment with the best view – rather look for size, or layout appeal – these apartments are sometimes a little more affordable than the ones with epic views.
You must commit your investment funds for up to 20 years to see good returns, and this may not work for someone who would like to see results in the near future. However, if you invest cleverly, you could see good returns within 5 years, and keep adding to your property portfolio.
Buyers should be conservative when considering affordability, especially as a first-time investment buyer. A buy-to-let property comes with its benefits, but only if monitored carefully.