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Considerations when buying residential investment properties

Research & Preparation

  • Seek financial and legal advice in relation to how much you can borrow, what the tax implications are in purchase a secondary property and what the legal implications are before proceeding with a BTL purchase;
  • Consider what the role and responsibility of a landlord is and ensure you are familiar with the responsibilities associated with this;
  • Understand the impact of rising interest rates and the mortgage obligations and impact on occupancy issues;
  • Location is key – what factors will attract optimum occupancy – be it infrastructure, proximity to amenities such as schools, services, etc;
  • The BTL deposit requirement is 30% minimum so you need to have a large deposit available from has come from an unborrowed source;
  • Factor what exactly is included in the sale and budget carefully for fit out costs and other associated costs e.g. stamp duty, legal costs. The legal costs are normally more expensive than buying a home due to needing an additional solicitor to oversee the purchase. This is known as a “three way closing” where there is a solicitor acting for the seller, the buyer and a third, to oversee everything must be deployed;
  • Ensure your BTL is independent from your principle residence and that the lender does not require a cross security charge or additional security when purchasing the BTL;
  • Ensure you obtain legal advice in regard to any proposed lettings and the rights of the tenant. Check out the www.rtb.ie for further information.

Choosing the right BTL Property

  • Does the investment make economic sense?
  • Is the rental return or rental yield adequate?
  • This is the difference between the cost of the purchase and the rental income achievable. You cannot assume that property prices will increase. This is a long-term investment and you need to examine that the term fits in with your long tern financial plans e.g. goals for retirement.
  • Is the rental potential for your chosen property achievable?
  • Is their comparative rental values similar to what you feel is achievable in the market. Don’t accept the selling agents advice as a guarantee. If you are buying an apartment make sure to review the Management Company accounts and the management charges associated with the property. Many management companies are struggling to receive management fees which can have an overall effect on the management and running costs of an apartment complex. Discuss this with the existing owners in the complex. Talk to existing tenants.
  • Can you meet the mortgage obligations if the property is vacant for an extended period?
  • It is recommended that at least 3 months mortgage repayments are preserved for periods of inoccupancy. Budget for taxation and management costs each year.
  • Supervise the letting of your property and get an understanding an appreciation of who the tenant is, where they work and consider the industry and occupation of the tenant to ensure they are in a position to maintain the rental payments where possible. Regular engagement with the tenant is recommended to ensure the tenant is happy and that the property is being well maintained and managed by all concerned;
  • A reduced rent from a reputable long-term tenant can often be the best approach as it provides consistency of rent and a sustainable long-term tenancy that keeps both tenant and landlord satisfied.

Choosing the Right BTL Mortgage

  • Which lender offers the optimum loan to value?
  • What rates are available?
  • There is a huge difference between home loan and BTL rates so please be aware of this.
  • Does the lender restrict the loan to value based on location (Urban v Rural)?
  • What level of rental income will the lender consider for occupancy reasons to support the proposal?
  • Some lenders offer home loan rates if purchasing a holiday home as opposed to a BTL so contact Campion Insurance to discuss this further.
  • Is the BTL being purchased using your pension fund?
  • If so, some lenders may not offer this facility.
  • Is Interest only repayments an option where the mortgage interest is merely repaid and the rental income more than services the debt?
  • Term of Mortgage is generally restricted to 25 years max.

Get in Touch

Contact one of our local Financial Advisors on 1890 300 303 to discuss your options. Alternatively, request a call back and one of our Advisors will be in touch.

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Important Assumptions

For the purpose of determining the term over which pension contributions are made, we have assumed your birthday was exactly six months ago.

If your target retirement age is lower than the age at which the Social Welfare pension commences (age 68 if you are born on/after 01/01/1961, age 67 if born before this date but on/after 01/01/1955 and age 66 if born before 01/01/1955) the calculations allow for funding for this gap, in addition to the cost of the annuity.

You are entitled to a full Social Welfare pension of €248.30 per week as at March 2019 which is assumed to increase by 2.5% per year.

You are saving for the difference between the Social Welfare pension and your target monthly income in retirement.

We have allowed for inflation of your target monthly income of 2.5% per annum between now and your retirement date.

Any other private pension provision you may have in place has not been taken into account.

Your monthly pension contribution increases by 2.5% each year up until your retirement age and is invested in a pension plan with an annual management charge of 1% and a 5% charge on each contribution, in line with the Standard PRSA fees and charges maximum limit.

A Gross Investment Return of 4.2% per annum on your savings. This is not a forecast because the value of your investment may grow at a faster or slower rate than assumed and the value of your investment may be expected to fall from time to time as well as rise.

On retirement you purchase an annuity which escalates at 1.5% each year, has a 5-year guarantee and is payable monthly in advance. The annuity rate assumes a post retirement interest rate of 2% per annum and no spouse’s pension. The actual annuity rate will depend on the selection of dependant’s pension, guaranteed period and the escalation rate, as well as interest rates prevailing when the annuity is purchased.

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