Is 'Buy to Let' Property a Solid Investment?

'Buy to let' property is a form of housing investment made in a home specifically to generate rental income. The investor has no intention of living in the home full time; instead, the investor will aim to let the house out to cover the mortgage cost and receive a profit. Historically, purchasing buy to let property has been a good investment since it is backed up by a hard asset and still provides a constant income source. However, buy to let strategies are not without risks, particularly in a volatile real estate market.

Start up & maintenance costs

The cost of obtaining a rental property can be very high. You will not qualify for a traditional mortgage on a secondary property, so you must apply for a loan designed to purchase a rental property. These loans will require more extensive applications, and they may be costlier. Further, you must put money into the property while you own it to maintain quality. Those expenses are tax deductible from your income earned on the investment, but they can still require a large amount of up front cash. Even when you rent out a property, you must pay property taxes, insurance and home owners fees.

Property management

You will also need to hire a property manager. A manager can help you with several facets of renting. First, there is the cost of listing the property for rent. This can cost thousands of dollars in marketing expenses. The expenses can include finding tenants, accepting applications, processing credit checks and securing contracts. If you do not wish to do this part yourself, you will have to hire a manager. In either case, you will owe your money, your time or both. If you have no experience in operating a rental property, obtaining a leasing agent may be worth the cost.

Rental market considerations

Some rental markets have more resilience than others. Markets in large cities tend to be the  most profitable. At the same time, it can also be very costly to find renters in large cities. If you purchase a less expensive property in a less popular area, you may find the stream of tenants is less predictable. Changes in the economy can greatly affect the income you will generate off the buy to let property. Anytime that your property is vacant, you will be left with having to pay all costs yourself. 

When to invest in buy-to-let

Investing in buy to let properties is best for an individual who has the resources needed to purchase and maintain the property. If you are using every resource you have to purchase the property, you may find yourself in a bad position when you need to make an improvement or pay to run a background check on your tenant. On the other hand, if you have extra cash to pour into maintaining the property initially, you can build a very successful revenue stream in just a few short years with a rental property.

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