Will 2011 Be The Year For Investing In Residential Property?

By Doherty • February 5th, 2011
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At the close of 2010, the Royal Institution of Chartered Surveyors (RICS) predicted that house prices in Britain could fall more than 2% in the next year. Although, while this is bad news for homeowners, assuming the commercial mortgage market holds up, the fall in house prices could spur an increase in the level of interest in investing in property. Could, therefore, 2011 be the year of boom for Buy to Let?

The RICs predictions cast a huge shadow over the future of the housing market. Although, as with all investments, you must consider the long term and the economy is slowly on an improvement course, which means the housing market naturally has to follow. Maybe, underneath it all, 2011 is in actual fact the perfect time to invest in property.

Of course, renting property isn’t for everyone. Not only is it a long term commitment of hard work and dedication but it is also expensive. For most Buy to Let properties you will be required to pay at least 25% in way of an initial deposit. Similarly, there are various other costs to consider such as legal fees, letting agent fees and landlord insurance, just to name a few.

However, if you have the money to make that initial investment (and let’s face it, the rates of return on other types of savings and investments are hardly attractive at the moment), then Buy to Let could be the ideal solution.  As lenders stick to tighter underwriting criteria than ever before – particularly for first time buyers – more and more people are driven to renting.

The initial paperwork and calculations, when considering buying property to rent, should include your projected rental yield, how much you intend to charge in rent and what you feel your continued expenditure will consist of during the rental term. Getting clued up on these figures will help you determine if it will be a worthwhile venture.

In simple terms, these exact figures can be calculated by subtracting your total annual costs from your total annual projected rental yield and then dividing the sum by the total of your initial costs. When I say total annual costs I include mortgage repayments, maintenance/repair costs and letting agent fees. Similarly, by initial costs, I include fees such as the initial deposit, surveyor and solicitor fees and renovation/decoration and furnishing costs. It is always best to seek financial advice if you are unsure of how to go about the calculations.

As this calculation provides a sound estimate, it also gives you some flexibility to change some of your values in order to account for variations. For example, fluctuations in house prices, lender terms and an increase or decrease in how much you intend to charge in rent. The various projected outcomes will allow you to determine if your investment will be beneficial no matter what the market conditions.

The specialised nature of Buy to Let finance means that the best value for money will not be found on the high street. Looking for a mortgage broker is the advisable route to take in this instance, as they really do know their stuff regarding the Buy to Let market.

There are hundreds of professional and independent mortgage brokers out there who will be able to advise you of the best deals available for your personal circumstance. At the end of the day, the more you can pay in way of a deposit, the better rates you are bound to get. Don’t be afraid to ask for help, especially if this is your first time venturing into the buy to let market. Without advice you could just end up shooting yourself in the foot.

So, is 2011 the right time to Buy to Let? With the housing market as it is at the moment, and the relative availability of commercial property finance now has never been a better time to enter the letting market. The environment is favorable for landlords and demand for rented property is increasing almost daily. So, if you are looking for a new adventure as we enter the New Year, then consider buy to let as the biggest and best investment of your lifetime.

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