BUYING A FLAT TO LET

Ever more people are buying flats simply in order to let them, with no intention of ever living in the place themselves. It is not unusual these days to hear of quite ordinary people owning literally hundreds of properties which they sublet to tenants paying rent.

But even when you are an absentee landlord, you remain responsible for the property, for paying the service charges, ground rent and any building levies or other costs imposed by the freeholder or managing agents.

If there is bad behaviour by your tenants, the freeholder or Residents’ Association will come on to you, not your tenant, to sort it out.

Financing the purchase

Unless paying cash, you will have to set up a special buy-to-let mortgage as, strictly speaking, you are not allowed to sublet on an ordinary mortgage. Most investors take out interest-only mortgages and hope that the rental income will more than cover costs such as mortgage repayments, letting fees and any other costs.

There are currently more than 50 lenders offering buy-to-let mortgages and the business is becoming very competitive indeed, so it pays to shop around. There will also be setting-up fees and survey fees to pay.

In general, the mortgage is granted on the amount of rent the property is expected to fetch, rather than your income levels. The usual ratio is that the rent must cover 130 per cent of the mortgage repayment costs. Usually you would have to put down a 20 per cent deposit in cash.

It is vital, before buying an investment flat, to work out all the figures, and see whether they give you an operating profit, bearing in mind – as we have already seen – that buying into an apartment building can have ongoing costs so far as service charges, ground rent, building levies and other maintenance costs are concerned. There will also be insurance, fees to letting agents, cost of upgrading or updating, phone calls to tenants, petrol, as well as the possibility of unpaid rent.

So, make sure you know precisely what you are getting into, and work out the figures as exactly as you can. Wishful thinking is to be discouraged, especially as tenants now have many properties to choose from, and there is great competition in the marketplace. Very few of today’s highly-geared landlords can afford a void, whereby the property will not rent out at all. And if you have to keep reducing the rent, you may find you can no longer cover costs.

Proceed on all the certainties you can – rather than just hoping it will all work out.

Your responsibilities as a landlord

Many amateur investors buy flats and rent them out without ever considering that by doing so they are involving themselves in highly complicated tenure matters.

Very many property clubs and expensive buy-to-let seminars never ever mention this aspect of buy-to-let, as they concentrate only on the possible profit to be made from tenants. But when you house somebody, you have assumed a certain amount of responsibility for that person.

Buying a flat to let is emphatically not the same as setting up a car hire business, for instance, as when you provide a roof over somebody’s head, that somebody has rights as well as you – rights that in some cases go back to ancient times.

All the rules and regulations affecting both sides to the contract – that is, the landlord and the tenant – will be set out in the legally-binding tenancy agreement. Make sure you understand and agree to all the terms before signing such a document.

You will, for instance, need to ensure that all furnishings and fittings meet current health and safety requirements and that gas and electrical fittings and appliances also conform to present day standards. It is mandatory to have an annual gas check, and also to have any new electrical installations fitted by an Approved Contractor who will issue the relevant certificate.

In addition, you will have to compile an inventory – this is not as difficult as some people make it seem but essential none the less and deal with matters such as the dilapidations deposit and receiving the rent on time.

You may also need extra insurance when renting out a property in an apartment block.