Buying to Let

In recent years buy-to-let mortgages have revolutionised the letting market, making it easier to buy and let out property than ever before. The logic behind buy-to-let is simple. Over the years, the value of property has gone up by more than the rate of inflation. If you can buy property and then let it at a rent that is more than the cost of repaying the loan financing the purchase, then you have the perfect investment - an income-producing asset that will also increase in value.

Most people make a gross profit of between 5 - 10% (the rental yield) and property value has risen by up to 25% or more a year in many areas. It's an excellent investment and is seemingly risk-free - unless there's a property crash. But there are some pitfalls you need to avoid.

• Don't get carried away by dreams of wealth. In many parts of the country, there is already a surplus of accommodation to let, and there's no guarantee that you will get a tenant or have a steady succession of tenants. In late 2004, rental yields were less than 1% in many areas and some landlords were actually losing money.
• Buy a property that will be easy to let - size, location, and the rent you will need to charge to make a decent return on your investment will be paramount.
• Ask letting agents which types of property, and in which areas, are easiest to let.
• Do your sums carefully before buying and don't believe what letting agents tell you regarding rental income, as they may exaggerate the return you can expect, in order to encourage you.
• Like any other business, a letting business has to be run. Be prepared for things to go wrong - burst pipes, for instance, and other problems that need fixing quickly. You'll have to organise these, and you will be liable to compensate the tenant if you are not able to act quickly enough. Alternatively, you can delegate responsibility to an agent, as part of a full management service.

With property values stagnating or even falling in some areas, investors are being advised that they could be better off keeping their money in a savings account over the next few years, so think carefully before you buy.