What does buy-to-let mean?

Buy-to-let is the term given to buying a property which you are going to rent out, rather than live in yourself. If you’re not buying the property outright with cash, you’ll need a buy-to-let mortgage or pay in installments. These mortgages will usually have higher fees due to the bigger risk for the mortgage provider.

But how does buy to let model work ?

Despite rent on tenancy renewals seeing their sharpest drop in years as the economic impact of the coronavirus continues, many investors prefer to invest in buy to let houses in preparation for the better days ahead.

It also clear that renting out houses, offers more flexibility than buying a home as this covid-19 uncertainty keeps rises.

The market

Both property prices and rental rates are cyclical so you need to take this initiative as along term investment. If you are the type of person who wants to jump into investment and gain returns immediately then buy-to-let is not the right one for you. Property is not a liquid asset and trying to offset your investment in times of uncertainty could probably results in you making losses.  The period from putting a property on the market to the time of completing a sale or getting a tenant could take some months.

Void Periods

It is not for sure that your buy-to-let property will be occupied all the time. The rental market is fluid with tenants changing properties regularly due to family or work issues. So you will need to expect and plan for such days when your property is empty.

Key things to know

a) Yield of buy-to-let

The return on your buy to let investment is called rental yield and it is dependent on many factors including location of property, type of property, market conditions and condition of the property.

b) Gross Yield

This is the annual rent of the property divided by the purchase price of the property expressed as a percentage.

c) Net Yield

The net yield of your property is the annual rental income less costs such as maintenance costs, mortgage costs, utility bills, void periods etc divided by the purchase price of the property expressed as a percentage.

Gross rental yields in Uganda are always around 6% but the net yield can be a less if your costs are high or if you experience long void periods.

Affordable houses or any cheaper to buy property will provide a better annual yield and we recommend that you look for rental yield of 130% to 150% of your mortgage payments.

But as we mentioned of the factors that affect your returns, location is important to consider in order to get best return.

Financing your buy-to-let property

There are three to finance your buy-to-let property

1. Upfront payment or sometimes called full buy-to-let purchase
2. Mortgage
3. Installment purchase

For all these buy-to-let options, please contact our team for free help and one on one assistance.

Managing your Buy-to-Let Property

If you are able to find tenants quickly and easily it will save you money and potential headaches. However, you will need to:

• Advertise your property
• Check references when you find potential tenants
• Arrange the deposit and ensure it is held in an appropriate scheme

Alternatively you can get an agency to manage your property for you. They can:

• Find your tenants
• Fully vet them
• Sort out the paperwork

They can also take care of issues during the tenancy, although all of this will come at a cost, which could reduce your profits.

How to maximise your buy-to-let profits

Location – Think location, location, location. With property values differing so much and the expected price rises dependent on where you buy, it pays to spend some time researching the best buy-to-let areas.

Figures released by Homes in Uganda indicate that Najjera and Naalya are the most attractive places to invest in for 2020. Some 36% of landlords either voted for Najjera or Naalya as the top places to invest.

Your future tenant – Location is extremely important, but it might help to think about who your ideal tenant would be. Are you looking for students, professionals or families, for example? Your tenant choice may have an impact on the location.

Capitalise on a weaker market – Now, not everywhere in the Kampala is seeing a weaker property market, but if you do your homework, this could be the best time to join the buy-to-let club.

Warren Buffet said: “The best chance to deploy capital is when things are going down.” So, with slower property prices and more individual investors walking away from buy-to-let, perhaps now is the best chance to start your investment.

Seek the advice of professionals – There are ways to minimise the effects of the regulatory and tax changes for buy-to-let. It’s not a one size fits all approach though and depends on the size of your portfolio, whether you’re married, if you’re a basic or higher rate taxpayer, etc.