Being ready to purchase your first buy-to-let property or to expand an existing portfolio is undoubtedly a great position to find yourself in. That is not to say the path to success is straightforward or guaranteed which is why you should take into consideration our buy-to-let advice.
Here, we take a look at several factors you would be wise to consider if you are to make the most of your available resources and give yourself the greatest chance of long-term success as a landlord.
Our first bit of buy-to-let advice is to be open minded with your search locations. One mistake some landlords make is to think they must buy a property to let in their home town. Instead, you should do plenty of research into the rental yields available not only in your immediate area, but also in surrounding settlements.
You might just find there are other villages, towns and cities in which property prices are significantly lower but rental values do not fall as sharply. For instance, if property in a neighbouring location is 25 per cent cheaper than in your town and rental prices are just ten per cent less, it presents a more lucrative proposition.
Investing in a buy-to-let property in an area without tenants who want to live there is a situation no landlord wants to find themselves in. You need to be sure that tenant demand outstrips supply so that you can be confident of letting the property quickly and avoiding void periods.
You may also want to try and target a particular type of tenant, for example you could run a HMO for university students, or try to attract young families. These two types of tenant would have different requirements so you’d need to factor this in when searching for a buy-to-let property.
Picking a property that is within a reasonable distance of local amenities such as shops, restaurants and bus and train links is usually a good idea, as this will appeal to most prospective tenants. You should remember to be in the mindset of where your tenants would want to live when purchasing, not yourself!
You will not want your financial plan to be ruined by unforeseen and costly maintenance issues. As such, you should consider how likely a property is to require ongoing repairs and improvements before you commit to buying it.
It is often a good idea to steer clear of older properties, as these might be most likely to require expensive maintenance projects. After all, you are not going to be living there, so investing in a period house or a traditional cottage should not be your priority. Modern properties tend to let much easier too.
If you need to do a bit of renovation before moving your first tenants in, take into account some of the main things tenants want. These usually include a blank canvas they can make their home, a decent amount of storage, and easy to maintain outdoor space.
It is important to think about the types of property that are likely to appeal to the largest possible audience. It might be cheapest to buy a one-bedroom flat, but how many people are looking to rent one?
Two-bedroom houses and flats are typically extremely popular and appeal to a huge number of potential tenants.
If you need a mortgage, then you should obtain an agreement in principle at an early stage to try and speed up the process of your buy-to-let purchase.
To ensure you get the most out of your investment, having a suitable mortgage deal that is tailored to your circumstances is a must. At Leaders, we’re partnered with Mortgage Scout who have decades of experience specifically in buy-to-let mortgages, and can advise landlords on how these differ from standard residential mortgages.
As a guideline, buy-to-let mortgages tend to depend largely on the rental income you expect to get, although other means of income may be considered too.
As well as the mortgage, there will be other costs you will need to factor into your finances. Some will be one-off costs when purchasing a property, and others will be annual fees. These could include:
It is always important to protect your investment and whilst it isn’t a legal obligation to take out specialist landlord insurance, it is in your best interest. It covers your liability for loss of rent, damage inflicted by tenants, damage from events such as flooding or fire, and replacement locks and keys.
As a condition for most mortgages, you’ll also need to get buildings insurance, and it’s worth considering contents insurance too if you plan to let your property fully furnished.
Whilst it isn’t the most exciting of topics, tax is something to consider when looking to become a landlord as it can affect you in different ways.
Tax on rental profits
Firstly, you may have to pay tax on the profit you make from renting a property after deducting any allowable expenses. Once you start renting out property, you will need to let HM Revenue and Customs (HMRC) know and report your rental income to them each year. There are also restrictions on the amount of tax relief that you can get, so it is a good idea to read up on this or consult a tax expert.
Capital Gains Tax
When it comes to selling a buy-to-let property, you’ll have to pay Capital Gains Tax. This is a tax on the profit when you sell something that’s increased in value. It is applied on second homes and buy-to-let properties, but not on main residences.
If you inherit a property or are expecting to inherit one and are thinking about renting it out, it is worthwhile consulting a tax expert first. The deceased person’s estate might be charged Inheritance Tax, which could be as much as 40%, and may mean you need to sell it.
There are certain legal responsibilities you should be aware of as a landlord. Some of the key things you will be responsible for include:
Lack of compliance can mean hefty fines and even prison sentences. With over 150+ pieces of legislation that are constantly changing, you might want to think about whether you want to use a letting agent to manage your property on your behalf.
It is no secret that many investors choose to leave their property portfolio in the hands of a professional letting agent. This has the clear benefit of making sure you’re always on top of new and changing legislation and saves you from all the work that goes into managing a property.
However, you will also benefit in many more ways than simply freeing up your time and avoiding any associated stress. For instance, at Leaders, we have access to thousands of prospective tenants through our comprehensive marketing service. This includes a strong presence on Rightmove, making it more likely that your property will be filled by a quality tenant at all times.
There tends to be different types of service that letting agents provide, depending on how hands on (or hands off) you want to be. At Leaders for example, we offer a let only service (help with finding tenants), rent collection (help with finding tenants and collecting the rent on your behalf), and fully managed (everything is covered from the rent collection service, as well as maintenance and repairs, property appraisals, and much more).
Although there is a lot to process in this article and it may seem overwhelming, being a landlord can be very rewarding! We help thousands on an annual basis, so if you have any buy-to-let questions or need further advice, then please get in touch with your local Leaders branch. You can also start your property search now by seeing what properties we currently have for sale.
Looking for advice?
If you're looking to let or sell your property, we can help. Get in touch with your local branch or book in for a property valuation.