Buy-to-let properties are the most traditional form of property investment. A Buy-To-Let property is specifically purchased to rent it out. This guide will look at all the elements that must be considered before purchasing.
Revenue streams
Buy-to-let properties provide two revenue streams. Firstly there is the rental income, sometimes known as rental yield.
The second revenue stream is property value; historically, property prices in Ireland have incrementally increased.
In summary, the property you purchase is likely to increase in value year after year. When you supplement that with the rental income, becoming a buy-to-let landlord can be a very attractive proposition.
Can I Get A Mortgage For Buy To Let?
Yes, you can use a mortgage to buy a property and let it out on the rental market. In most cases, buy-to-let mortgages are provided on an interest-only basis. This means that your monthly repayments will only pay off the interest on the loan and none of the capital. Whilst this is great in the short term, as you’ll have more cash available, it’s essential to have a solid plan for repaying the mortgage when the term ends. For most investors, this means using savings accrued during the mortgage term, selling the property, or refinancing with another mortgage.
Is a Buy-To-Let mortgage deposit larger?
Most landlords will purchase a property using a specific buy-to-let mortgage. It’s important when creating your budget to account for the disparity in deposit value. A traditional mortgage will have an average deposit of 5 – 10%; a buy-to-let mortgage will often have a much higher deposit. In Ireland, an investor hoping to acquire a buy-to-let mortgage will need a 20 – 25% deposit.
What’s the difference between a residential mortgage and a buy-to-let mortgage?
Like with a standard residential mortgage, the bigger the deposit you can put down upfront, the better the rates you are likely to qualify for. As a guide, the best rates are usually available to investors who can deposit 40% or more of the total property value.
With a residential mortgage, you make monthly repayments, including interest. This interest rate will be agreed upon with your bank before you sign off on the loan, but you will usually be on a fixed rate for a certain period before moving on to a variable rate.
A buy-to-let mortgage has a slightly different repayment scheme. You will ordinarily be offered a buy-to-let mortgage facilitated on an interest-only basis. Essentially your monthly payments only pay the interest off the loan, not the capital. This, in turn results in lower monthly repayments. As mentioned above, it’s important to know what your plan is when the interest-only period ends.
Can I Live In The House I’ve Bought With A ‘Buy To Let’ Mortgage?
When applying for a buy-to-let mortgage, the intent is to rent out the property and be a landlord of that property. Due to this, you can not live on the property and must find tenants to let the property from you.
If you decide to live in the property instead of renting it out, you will breach your mortgage terms and conditions, essentially committing mortgage fraud. If your mortgage lender were made aware that you were living in the property, they would likely demand immediate repayment of the loan.
Furthermore, mortgage fraud is a criminal offence in Ireland and can lead to a maximum of 10 years imprisonment. You may also end up with a permanent criminal record making it very hard to acquire any type of loan from the bank in the future.
Can I Change My Mortgage?
Whether you can change will come down to what you contractually agreed.
You’ll Need To Have Your Finances In Order
Like any loan you apply for, you must have all your paperwork and finances in order. To be considered for a buy-to-let mortgage, you will typically need to pay a 20% deposit.
Furthermore, your mortgage lender will look at the rental income the property will make; you must ensure that your property will be able to cover the costs of repayments.
Regardless of whether the property is occupied by tenants, the mortgage will have to be paid. As part of your financial planning, it’s essential to be able to account for periods when the property will not be occupied.
Choosing The Right Property
Like you with a home you’re buying to live in, a home you’re buying to LET should meet specific criteria.
You will want to buy a property that is easily LET and finished to a high enough standard that maintenance issues will be kept to a minimum. If you are undertaking the work to bring it to standard, you’ll want to acquire quotes for any work that needs to be carried out.
Follow The Legal Requirements
As a buy-to-let landlord; there are legal requirements to your being allowed to rent a property. These include
The Tenancy Deposit Scheme. This ensures that deposits you acquire from your tenants are protected in a government-authorised scheme.
If you rent your property to several tenants on separate contracts, for example, students in a house share, you will need a Houses in Multiple Occupancy (HMO) Licence.
If you are increasing the rent for your tenants, you will need to inform them 90 days beforehand in writing in what is known as a rent review notice.
Tenancy agreements must be registered with the Residential Tenancies Board (RTB)
You should provide tenants with a rent book as a means of keeping track of and recording rent payments.
Managing Expenses
The primary function of the money you make from letting the property may be to cover mortgage repayments; however, there are other expenses that you will encounter as a landlord. These include, but are not limited to,
Maintenance costs, the cost of refurbishing the property, fees for advertising your property to tenants from letting agencies, landlord insurance, and periods when your property is vacant.
Your Responsibilities as a Buy-To-Let Landlord
As a landlord, you have specific responsibilities towards your tenants and their property. These include
- Repairs to the structure of the property inside and outside
- Registering the property with the RTB
- Insure the property
- Ensuring the safety of gas and electrical appliances
- Checking that furniture meets fire safety regulations
- Maintaining any installations, heating, bathrooms, and water systems
- Conducting inspections
- Finding tenants, checking their references, and collecting rent
Can use this re-write either:
You will have specific responsibilities as a landlord towards your tenants.
These include, but are not limited to:
- Repairing any damage to the structure of the property, both inside and out.
- You must register the property as a rental with the Residential Tenancies Board.
- Acquire insurance for the property, as well as landlord insurance.
- Ensuring that all electrical appliances are safe to use.
- Ensuring fire regulations are met.
- Maintaining any installations, heating, bathrooms, and water systems.
- Finding tenants, checking their references, and collecting rent. You can pay a letting agent to provide this service for you if you wish.
Property Management Dublin
If you are thinking of becoming a buy-let-landlord and need help answering any questions, KPM can help.
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Contact us today to speak with one of our dedicated experts on buying to let and how KPM can help manage your property investments.
