The "Buy To Let " concept has become exceptionally popular during the past 5 - 10 years as people have realised the fantastic growth opportunities that are unique to property. In the past this market was predominantly led by wealthy individuals with established property backgrounds. However, with the significant rise in property prices home owners have also been more than able to enter this market by releasing large amounts of equity in their properties. Lending organisations have similarly caught on to this concept, realising what a huge lending market was at their disposal. Therefore, there has never been more choice, with a staggering number of Buy To Let products now available to property investors. Lenders have significantly reduced their levels of underwriting to appeal to the mass market.

Purchasing Property
Many individuals have expressed concerns over this huge influx of people purchasing property for investment, many of whom have no property investment knowledge whatsoever. It is therefore very important to always seek sound professional advice before considering a property purchase for Investment purposes. The main reason behind this is that some of the best and most desirable properties to live in are not the best properties for renting out to prespective tenants. Many property investors miss this extremely important concept, with many suffering as a direct consequence. When considering a property purchase for investment purposes the number one criteria is Location, Location, Location. Properties need to be close to Public transport, in order for tenants to travel into work.

Property Strategy
Similarly Property investors need to have a purchasing strategy, in the types of property they buy. At the core of any decision is whether the property investor is seeking good rental returns i.e. they will receive a profit from the rents they receive over and above their mortgage payment, helping with their monthly cash flow. These investors tend to purchase cheaper often ex-council properties, and tend to be new property investors. More experienced, often also wealthier from an income perspective, tend to prefer not to adopt this strategy but instead target properties with strong capital growth. Here their strategy will be to buy better quality properties, typically period conversion flats in London which over time have increased at a far higher rate than that of the ex-council properties. The downside is that these properties have now become very expensive to finance, meaning that many investors have to supplement the rent they receive from their monthly incomes to cover the mortgage payments.

Criteria
When considering a property purchase for investment purposes, the number one criteria is Location, Location, and Location. Tenants will require not only decent public transport such as Train, tube and bus stations nearby, but also excellent Eating, drinking and shopping facilities in close proximity. It is important for people be it owners or tenants to feel safe in their homes, therefore for investors to achieve good rents, tenants must want to live in their property and surrounding areas.

Considerations
Indeed in order for property investors to be successful they need to consider any given property purchase from a tenants perspective. What factors are important in any flat or house finding a suitable tenant? As already mentioned location is key, as tenants are effectively renting a lifestyle from you the property owner as well as a property.

Property Investors
Infact for most property investors the level of rent achievable on their investment is at the very core of defining their property purchasing strategy. Clearly approximately 5 % of property investors are independently wealthy and therefore do not require a mortgage to fund a property purchase. However, with interest rates despite their recent rise still being so low, many of these are still borrowing funds so as they are able to purchase more properties and earn better levels of profit.

Deposits
The minimum level of deposit required by lending institutions when granting a borrowing facility on a "Buy To Let " mortgage is 15 %. Property investors also need to factor in on top of the deposit, other associated property costs. These include Stamp Duty which a property purchasing tax paid to the Government. There are 4 different bands at time of writing. For properties purchased for less than £60,000 there is No stamp duty charged. However, a 1 % charge is levied on properties purchased between £60,000 and £250,000. For Properties purchased between £250,000 and £500,000 a 3 % charge is levied and for all properties purchased over and above £500,000 a 4 % charge is levied. Purchasers will also have additional fees to pay Solicitors and mortgage brokerage fees. Therefore investors should budget for having 20 % of a properties purchase price when considering another property purchase.

Investing in Property
For most property investors the total mortgage required constitutes a LTV (Loan to Value) of 85 %. Therefore for a property purchase of say £200,000 the borrower will need the lending organisation to grant them a mortgage offer of £170,000, with the investor funding the remaining £30,000. In order for this to happen, it is imperative that the level of monthly rent received is enough for the lending organisation to grant £170,000. Not surprisingly, every lending organisation has their own unique method of calculating the amount of monies they will release.

Standard Variable Mortgage
Lending organisations typically have their standard variable mortgage rate at approximately 2 % above bank of England base rates, currently 4.5 %, thus a SVR of 6.5 %. Lenders will apply then apply their SVR against the level of Borrowing required, in order to work out the annual cost of borrowing. A loading of 130 % is then typically applied by the lender as their assessment of the additional lending risk of a Buy to Let Mortgage over a main residence mortgage. Clearly there is a higher risk as if the Borrower loses their Tenant and thus their monthly rental payment, how are they able to continue paying their monthly mortgage payment. One can then divide this annual payment by 12 to establish the monthly payment.

Example
A worked example being if we apply a SVR of 6.5 % on a borrowing of £170,000, it equates to £11,050. We then apply the 130 % rule, which will increase payment to £14,365. Then we need to divide by 12 which equates to £1197. Therefore, this means that when the Lending organisation sends their Valuer around in his report in order for the lender to offer the borrower their required £170,000, there has to be a monthly rent achievable of at least £1197 say £1200. If this is the case, there is no problem. However, if the valuation report comes back saying that only £1100 is achievable, then the lender will not lend the required amount of £170,000. Instead the lender will offer £157,000 based upon the same rental. This would mean that in order for an investor to purchase the property for £200,000 they would need to put in an addition £13,000 on top of the £30,000 being 15 %, which in total means a total deposit of 22 %. Therefore it's important to assess accurately the realistic rental expected on any given property purchase.

Purchase Investments
Another important consideration when purchasing an investment property on a Buy to let basis is that the Property will be valued for rental purposes in its present condition. Therefore often investors attempt to buy properties in poor condition with the aim of spending an amount of money refurbishing it in order to increase the properties value. Remember firstly the property has to be habitable, i.e. be able to be rented out for a valuer to put a rental amount which can be capitalised for lending purposes. Where properties are not deemed habitable investors are wasting their valuation cheque as the Valuer will not put a rental amount down, which will result in the lender refusing to lend any money and thus the investor having to look elsewhere to be able to fund the property.

Move into Property
Often investors have to move into the property, whilst renovating, as it's the only way of achieving a mortgage to cover the majority of the finance required to fund the property purchase.

Tenants
When investors have purchased their properties, they then have to find a suitable tenant who hopefully will remain in the property for some time and who will pay a market level rent, which will hopefully enable the investor's mortgage payment to be covered. Investors can manage their properties themselves or employ a managing agent usually through an Estate Agent.

Selling Investments
Finally when the investor decides to sell their investment they have to take certain taxation issues into account, in the form of CGT (Capital Gains Tax). This is levied over 10 years reducing initially from 40 to 20 %on a sliding scale of profits made. Investors are liable to pay CGT on any gains / profits made from any of their investment properties which are not their main residence in the past 3 years upto the sale date.