Buy-to-let property
Did you ever consider buying a property just to rent it out? The extra income might be handsome enough to spark the interest. We’ll guide you through the pros and cons of renting out homes and what steps you need to take.
Determining your budget
The first step in buying a rental property is to determine your budget. In the Netherlands you have to acquire a rental mortgage, specifically mend for this purpose. The market value of a property in rented condition is usually a lot lower than the market value of a similar house that is free of rent. And the maximum mortgage is determent between 70% and 90% of this market value in rented condition. In order to buy a rental property you therefore need to bring your own money, either from savings or for example from the equity of your house.
While comparing the different mortgage providers you will find that they have a lot of different terms and conditions regarding a rental mortgage. They differ in how they look at your income, and which part of your (future) rental income is included. The method for determining the maximum you can lend for a rental property is very different too. It is therefore wise to first have an orientation meeting with an independent mortgage advisor, before you dive into the rental market.
For example: the house you want to purchase costs €300,000 and ask for €30,000 additional costs. You need a total of €330,000 to acquire it and rent it out. If the market value of the property in rented state is determined at € 250,000 by its valuation rapport and you can borrow a maximum of 80%, your mortgage is €200,000. In this example you need €130,000 of your own money for the purchase.
Finding a property
Once you determined your budget you can find a buy-to-let property. Finding a property is currently quite a challenge. You can try to do this by yourself, but if you have no experience with this yet, it is advisable to enlist the help of a real estate agent. A good real estate agent knows the market and can help you find the property and make an offer. A real estate agent can also help you find a suitable tenant and judge any leases that are already in place to prevent a bad buy. Is the house you have in mind an apartment? Make sure you read the regulations of the Owners’ Association (in Dutch: Vereniging van Eigenaren or VvE) carefully. Sometimes the rules of the VvE don’t allow you to rent out an apartment even if it is fully yours on paper.
Calculate your maximum mortgage
Starting the mortgage application
When you have found a suitable property, the next step is to get in touch with an independent mortgage advisor as soon as possible. During the first meeting, an estimation is made of the options based on the information that is already available. When you have chosen the lender, you will have the property appraised by an appraiser. As soon as their valuation report is available, a definitive mortgage advice will follow and the mortgage can be applied for.
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Renting the property
Once your mortgage application has been completed, you can start renting the property. But how to determine the rent? In the valuation report, the appraiser determines a rent that is in line with the market. You can deviate from this. If you don't have a tenant yet, it is important to determine what requirements a tenant must meet. It is customary to set an income requirement of 3 to 5 times the rent (for example: a gross rent €1,000, requires a gross monthly income of €3,000 to €5,000). It is also wise to ask for a deposit of once or twice the monthly rent.
As a landlord, you must also take into account that you will be called with maintenance questions or complaints. You will also need to perform regular general maintenance. In addition, you will have to keep a lot of administration. Not interested in the hustle? You may consider hiring a property manager. Of course, this is not for free, so this might only become profitable if you have several homes to rent out. All costs involved in renting out a home are called the operating costs and affect the return to be achieved. So make sure you calculate what your actual return can ultimately be before committing to a buy-to-let property.
Do you want to learn more about buy-to-let properties? A first orientation meeting at OHAO is always without obligation. Make an appointment with one of our mortgage advisors here.