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Let to let – a guide

If you are reading this, then in all likelihood, you’re a landlord. It shouldn’t entail a massive leap of imagination to picture a tenant paying you to live in your property, seeing as this is what the investment is all about. What might be a bit harder to imagine is taking that money and using it to pay rent… to your own landlord. This, ladies and gentlemen, is the ‘let to let’ phenomenon.

Do you mean that property sub-letting strategy?

What, rent to rent? The latest get-rich-quick scheme to do the rounds, rent to rent entails renting a property from a usually distressed landlord, doing the place up and sub-letting it for a profit. The legal set up can be a bit of a nightmare and the many claims that it can create a large ‘passive’ income are often treated with more than a little suspicion. (And then there’s the fact that, in October 2013, one of its biggest names nicked off with £60,000 worth of tenants’ deposits!)

No, I’m talking about let to let (sometimes referred to as ‘rent to let’, which might be where the confusion arises) that entails being the landlord of a buy to let property that you own, whilst simultaneously paying rent to live in a property that you don’t.

On the face of it, it seems counter-intuitive. To an investor, ‘dead money’ is a nightmare, and ‘paying someone else’s mortgage’ (the oft-held pejorative view of renting) is about as dead as money can get. But for some landlords, particularly younger investors who haven’t yet found their ideal home, or whose careers are still mobile, it’s the perfect setup.

A foot in the door

For renters, owning a rental property of their own can be a good way to get on the property ladder without having to sacrifice living standards or choice of location. A lot of let to let-ers live in fairly expensive areas, and would find it difficult to finance a starter home in the same area without downsizing. Their budgets might not allow for a deposit on a comparable place, but might just cover a buy to let property in a less expensive area.

Furthermore, with our cultural emphasis on homeownership and constant reports of the difficulties faced by first time buyers, it can be easy to forget than some folks simply prefer the renting lifestyle. Moving every six to twelve months can be rotten, but the flipside is the freedom that renting affords. Some people might be making big changes – like moving in with a partner, for instance – and want to ‘test the water’ before committing. Others enjoy being able to relocate at short notice without the hassle and stress of a property chain.

Suitable buy to let products for let to let

The strength of the buy to let mortgage market has improved the range and flexibility of products on offer, and there are now a fair few let to let mortgage options available.

As with any buy to let mortgage, your lender will require the rental income to cover the mortgage interest repayments by a certain amount, usually 120–130%. In addition, the most favourable interest rates and product features can be found at LTVs of 60% or lower, meaning that you’ll need at least a 40% deposit to put down.

Bear in mind that a number of buy to let mortgage lenders require that you already own your own home, meaning that your options as a renter are more limited than that of other investors. There’s also the impending Mortgage Market Review to consider – with the tightening of criteria in the residential mortgage market, it’s feasible that more people will attempt to fraudulently obtain buy to let finance in order to get a mortgage. To stop this, more lenders might start closing their doors to those without a residential property in the future.

Let to let property management

Managing a single let to let property is really no different to managing a single buy to let property – the only difference is that you’re more likely to have to up sticks at some point, and this could present a problem if you rely on being in close proximity to your tenants.

Otherwise, the choices are much the same. Do I self-manage, or do I use an agent? Do I invest for income, capital growth, or something in between? What sort of tenants do I want? How involved do I want to be in the day-to-day running of the property?

If you are completely new to the landlord lark, a good place to start is our step by step guide to becoming a landlord.

Some other bits and bobs that you might find interesting:

  • Capital growth vs. income
  • Self-managing your buy to let property
  • Choosing a letting agent

And of course, for the all-important matter of financing your let to let property, call us on the number above or request a quote to see how we can help you to find the most suitable buy to let mortgage.

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Amelia Vargo is an online marketing executive for CT Capital. Amelia writes for Turnkey Mortgages, Turnkey Landlords, TurnKey Bridging, TurnKey Life and Commercial Trust.