The rental market has seen some turbulence over the last few years. But at a time when interest rates are low, it is still an attractive investment option for many. If you are considering getting in on the action, however, as a small investor, there is little margin for error. Here are important things to keep in mind as you build a defensible rental income from your small portfolio.
Understand the calculations
Before setting out to purchase your first property, you need to take time and calculate what it would cost to get your ideal house and the amount you are likely to get in rent. Standard lenders will expect rent to cover 125% of the mortgage repayments. Some require at least 25% in deposits as well. When you have a handle on likely rent and mortgage rates, you will be able to better see the possibility of your investment paying off. Two key factors to include in the calculations are maintenance costs and financial impact of the property sitting empty for in-between lettings.
Shop around extensively for mortgage rates
When looking for mortgage rates, don’t fixate on a particular lender. That is a sure way to get short-changed. Contact an independent broker as they can help you look for the best rates and offer important advice on whether fixing or tracking is the route to go. Don’t go into the meeting with the independent broker blindly though. With your own research, you will be able to know what kind of mortgages will suit you the best.
Always keep your target tenants in focus
This is one way to ensure that your property is always rented. Instead of seeing the property from your own vantage point, think about your target tenant and understand your obligations to them as a landlord. Families will want enough space for their belongings and possibly a blank canvas. Students will want property that is comfortable but not luxurious and can be easily tidied. Upwardly mobile professionals will want something modern and stylish yet affordable.
Keep tax bill down by keeping proper records
You can develop your own book-keeping system as a landlord or go with the several other options in the market but consistent record keeping is vital to in your quest for sustainable rental income. It is a sure way to avoid inventory related problems, tenant disputes and local authority related issues. Proper record keeping is equally important in terms of tax breaks. The growth in the number of rental income seekers means that the authorities are more stringent than ever with taxes. Carelessness with records can cost you dearly.
These are foundations you need to get right as you aim to build a defensible rental income from a small portfolio.