As the workplace has evolved and more and more people in the workforce have become more mobile, there has been a massive growth in the requirement for rental properties and short-term leases. As as direct result of this, many investors have moved into the rental property market by taking out buy to let mortgages. Interest only deals have provided these new landlords a way of paying less per month than traditional capital repayment mortgages.
There are other benefits too:
- As a long term investment, rental properties can provide a significant return
- The monthly rent from tenants gives a solid, recurring income
- If your current portfolio consists of other types of investment, owning one or more rental properties will help you to diversify
An Investment for the Long Term
Photo by rmcgerveyOwning a rental property should not be viewed as a short-term investment. But by taking out an interest-only loan to purchase the property, the amount you need to pay to the lender each month is lowered, so the amount you need to make on rent is lower too. You can use the extra income from the rent to either re-invest or to pay back part of the loan’s principal. Of course, once the loan is repaid, you then have a property that is giving you a continued monthly income.
Diversifying Your Portfolio
Common sense dictates that it is never a good idea to put all your investment eggs into one basket. Versatility and diversification are the key to having a strong investment portfolio. And any investment that not only grows in value but generates its own monthly recurring income has to be a strong performer in the portfolio. A well-chosen rental property will satisfy both of these criteria.
Conclusion
When buying a property for rental, it is always worth considering the benefits of buy-to-let mortgages. Interest only mortgages provide the added advantage of requiring lower monthly payments. Be aware however that you can lose money on these deals if a) interest rates rise and remain high; b) the value of your property decreases or c) you cannot make enough money from rental income to cover the payments.
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