In the present times, when the global economic recession is hampering growth and reducing income levels of professionals, the buy to let business model has come up and is proving to be a saviour in these distressed times. The property prices continue to soar despite the slow growth.
Basic strategy of buy to let business model:
The basic scheme behind buy to let business model is that the borrower buys the property in order to let it out. He does not live in it as goes with a conventional mortgage system. In such cases, the bank is also keen to lend money since it is aware of the fact that the property is going to generate income which will be used to pay the mortgage. For this to happen, the lender has to assure the bank that adequate payments will be made every month in order to cover the basic mortgage. It is only then that the bank will offer a buy to let mortgage, which can frequently cover almost 95% of the value of property. Since the income is more than the mortgage payments each month, you will be able to own the property at the end of the deal. Hence the buy to let is an enticing option even though there are few pitfalls regarding the basic nature of this business.
A profitable business venture:
The buy to let market is gaining popularity and people prefer to invest money for this business strategy. This method of utilising financial resources is helping them sustain their life style and also provides a better quality of life to their family. People can make a considerable amount of money through intelligent planning, sensible borrowing and investment in property. In fact the buy to let model can yield good profits and will give a proper return on investment over a period of time.
Pitfalls of the Buy to Let business model:
A. Finding tenants: The primary problem which people face in this business venture is to find tenants. You have to quickly search for tenants so that you can make the mortgage repayments. If you are not able to let your property you will have to make the mortgage payments from your own pocket. Without the proper tenants, the buy to let can be problematic, and can end up costing you much more than you expected.
B. Legal Hassles: Another problem is that as a landlord, you will have many legal responsibilities as well as duties to perform. From repairs to safety checks, the law generally favours the tenants rather than the landlords, and sometimes the situation can become quite problematic and difficult.
C. Saturation in the market: Now the market is getting saturated and the chance to make money is reducing. Also it is becoming costly with every passing month.
By providing an income whilst buying a capital asset, buy to let has considerable potential to make you rich, if you exert keen business sense and plan meticulously. You can also take the help of an experienced and reliable Letting Agent.
This post is contributed by Keith Tully, MD of Real Business Rescue who provides consultancy in business insolvency since more than 10 years. His team of Real Business Turnaround Experts helps in a personalized approach in attentively assessing the unique needs and goals of every client.