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There are more than 526,000 properties in the UK with buy-to-let mortgages. The boom has taken place as more investors have shied away from the stock market and property has proven to be a great long term investment. With a high divorce rate, mobile workforce and growing student numbers there is plenty of demand for rental accommodation. Whilst we can't cover all topics in this article, the tips below should be used as a sound platform upon which you can make your decisions. 1. Choose the right property No surprises with this one. The area in which you buy should be well suited to letting. You also need to decide your target tenant market (young professionals, students etc). Consult local estate agents and letting agents to determine supply and demand. 2. Get the right mortgage There are hundreds of investment property mortgages available. Most lenders will allow you to borrow up to 85% of the property value and the rent you receive should cover 125% of the monthly mortgage payment. A good mortgage broker will help you with this. 3. Consider the 'hidden costs' You'll have many fees to pay, both up front and ongoing. There's the estate agent's fee, buildings insurance, mortgage arrangement fees, legal fees, stamp duty, and possibly service charges and ground rent. 4. Beware of ongoing costs You must repair the property and replace fixtures and fittings, ensuring that the work meets the relevant health and safety standards. You also need to comply with fire regulations. See the 'Furniture & Furnishings Fire & Safety Regulations' available on the Dept of Trade and Industry's website http://www.dti.gov.uk 5. Choose a letting agent If you decide to use one they will find the tenants (and do the reference checks), collect the deposit/rent and arrange inventory and tenancy agreements. They usually charge between 10-17.5% of the gross rental income. 6. Be insured Many buildings insurance policies do not cover buy-to-let so check the small print of your policy. You can also insure your furnishings etc. The tenant will normally be responsible for insuring their own contents. 7. Be prepared for the tax man You'll pay income tax on any rent you receive, although you can deduct certain expenses, including mortgage interest payments. There may also be capital gains tax to pay when you sell the property. 8. See buy to let as long term It's rare to make a profit in the short term, so it makes sense to take a 5 to 10 year view. The Financial Tips Bottom Line: Whilst investing in property takes effort and a great deal of patience, the rewards over the long term can be impressive. You should research as much as you can, however not to the point where you have 'analysis paralysis' and subsequently take no action. In summary, do your research and you'll be well on your way to either increasing your portfolio or starting out in property investment! NOTE: Buy to Let mortgages are not regulated by the Financial Services Authority. Copyright (c) 2006 Ray Prince
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Ray Prince is an Independent Financial Planner with Rutherford Wilkinson plc, and helps UK Resident Doctors and Dentists get the best deals on mortgages, protection and investments, as well as helping them achieve their financial objectives. Click here for Financial Advice for UK Doctors and Dentists and to get your free retirement guide, How To Avoid The 7 Most Common Retirement Planning Mistakes. Rutherford Wilkinson plc is authorised and regulated by the Financial Services Authority.
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