Buy-to-let refers to any property that is bought with the sole intention of letting it out to tenants. As opposed to buying a property to live in, the purchaser becomes the landlord of the property and will collect regular payments from their tenants to produce a rental income stream.
While the buy-to-let property can provide a return from rental income, it can also grow in value and produce a capital gain when it is sold.
What should the rent on a buy-to-let property cover?
While investment in buy-to-let property can be a full-time job for many people, there are just as many who use it as a side-earner for retirement or to diversify their investment portfolio.
Like any investment, there is a certain amount of risk involved when buying a buy-to-let property. As most buy-to-lets are purchased with a buy-to-let mortgage, the main risks involve leveraged speculation i.e. Will your rental income exceed the cost of the mortgage? And will your property be worth more when you sell it than when you bought it?
A buy-to-let mortgage is a loan taken out to purchase a property that you intend to lease to a tenant. The rules concerning buy-to-let mortgages are very similar to conventional mortgages but have several important differences:
Investing in a buy-to-let property with tenants already in place (like most the properties listed at Vesta) ensures rental income from day one.
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Your capital is at risk. Property values may decline and the property might not be able to be rented at amounts sufficient to cover debt interest costs, operating expenses and liabilities, and might not result in a positive cash flow. Property is an illiquid asset and should not be viewed as a short-term investment.
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