Why Buy To Let?

Posted:Abigail Andrews – Monday, March 26th, 2007

Rental properties are in increasing demand. The buy-to-let mortgage market is set to grow by more than 40% by 2016, according to research from the Alliance & Leicester (Center for Future Studies), which predicts that the rental sector will soar over the next decade. Landlord mortgages have grown rapidly over the last few years and account for about 8% of the market already.

Why do People Rent?

There are many reasons why people choose to rent:

• The divorce rate is rising and renting offers a relatively speedy solution to accommodation worries, when a relationship breaks down
• It offers our workforce and student population mobility and flexibility
• For the very many individuals and couples struggling to get on the property ladder, it offers privacy, and the opportunity to learn how to live together
• Immigration is also increasing and this also increases rental property demand

There are many more reason but these are the most common.

Why do People Invest in Buy to Let Properties?

As a result of the increasing need for rental housing, mortgage lenders are offering a wide range of mortgages for people looking to invest in property. A Buy to Let mortgage allows a home owner to purchase an additional property to rent to tenants. People do this for 2 main reasons, to create extra income and as an investment for the future. In the long term, though in recent years we have also seen in the short term, investment in property offers an excellent Return On Investment.

Unlike shares, savings, and many other investments opportunities, investing in a buy to let property is an investment, that, if done correctly, should more than pay for itself. Tenants basically pay your investment for you and as renting is on the up, you should have no problems finding tenants providing you have researched the renatl potential properly.

Buy To Let is Not Easy Money

Investing in a buy to let property is not an instant road to riches scheme. Before you dive in, be prepared to:

• have a deposit on the property tied up for an indefinite period. This is usually about 15-20% of the property value
• spend time, effort and money to get the place up to a standard where it will attract tenants
• be willing to incur the costs of furnishing the property if you decide to run a furnished let
• pay for maintenance and repairs to the property
• weather the fluctuations in the property market

Reasons to Buy to Let

Here are a few reasons why a Buy to Let property should be considered as part of your investment portfolio:

To create a decent pension

If you don't already know, find out what your pension will be when you retire. Most people know that the state pension does not amount to much, but many people think that their personal pension is worth a lot more than it actually is. You would be concerned if you realised just how little money you will have when you retire if you actually calculated your pension. Don't be fooled either by the fact that you have an end salary pension, your company may take that away at any point, I would not live with that insecurity. Most people who already own their own home and are in full-time work, could buy at least one buy to let property immediately, as an addition to their pension.

To take control of the future

Most people reach a stage in their life where they realise they have little control over their future. They are not in the position they wanted to be and feel their future is in control of other people, namely the people they work for. It happened to me at the age of 30. Investing in a property makes you feel more in control, it's a start to having some financial independence. How far you go to take control is completely down to your desires to be financially free and the efforts you make to be so.

As security against redundancy

Even though unemployment is low, building up a property portfolio provides a degree of security against the uncertainties which will affect most workers at some stage of their careers.

An Early Retirement "hobby"

Although we all dream of retiring early, many people still want something to do during that time. The novelty of sitting and watching TV all day and not having to do anything soon gives way to boredom. Besides most people have to work to supplement their retirement income in some way, perhaps taking on a job at the local supermarket pushing trolleys. A small portfolio of rental properties is an ideal alternative for those who want a good extra income, without being tied down by the demands of running a 'normal' business, or still having to work for others in retirement.

As part of your investment portfolio

Most advisors recommend a spread of investments, to reduce the risk of investing all your eggs in one basket. Having buy to let properties is just another string to your bow, accompanying stock investments, etc.

As a career change - Escape the Rat Race

It usually takes time, but over a few years you can build up a reasonable buy to let portfolio, the income from which would allow you to give up that job you have become so disillusioned with. It can allow you to exchange your job for a much more fulfilling career, investing in property.

To build REAL wealth

To make a million pounds is the dream of many and it is entirely possible over the long term to achieve this through property investment.

As diversification for a Small Businessman

If a small business is becoming successful you may be faced with a choice, expand the business and take on more staff or look for alternatives. Property is less time consuming and more secure when compared to other options.

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