A Guide to Investing in Buy-to-Let Properties

Guide to Investing in Buy-to-Let Properties

Renting property in the UK has a huge demand, with many tenants looking for viable properties. With the rent prices set to inflate in the future, renting your home is a great way to gain some revenue. Many people rent a portion of their home, a single room, or their entire house in cases when they are abroad for some time. However, with the bright future of the landlords renting their homes in the UK, the process of buying-to-let has gained huge popularity.

What is Buy-to-Let?

People look for buy-to-let as a good option for investment. It is a method to ensure a regular income for as long as you want. And the best part is that when the value of the house increases, you can either increase the rent or make a profitable sale. The mortgages rates are at a record low and this is a good time to invest in a buy-to-let property. With the right house and mortgage, you have the opportunity of make a rental income of anywhere between 5% and 10%, depending on where the house is located.

7 Things to Keep in Mind Before Investing in a Buy-to-Let Property

Before you jump onto this exciting opportunity to generate profits, there are many things that you need to keep in mind and plan for, so that you do not face any problems later on, and if you do, you would know exactly what to do. If you already have a house, and are applying for a buy-to-let mortgage, you are likely to be accepted. If you earn at least £25,000 a year, your application is bound to get the stamp of approval. If you need more details about this process, then this government website of the Money Advice Service will guide you and help you keep your finances in check.

1. Plan Your Budget

Investing in a buy-to-let property is a business, and like all businesses, involves the element of risk. You should plan a budget by taking every detail into account.

These are the basic costs that you need to factor into your budget:

  • The cost of a real estate agent (however, if you are using a online estate agent, your costs would cut down substantially
  • Deposit amount
  • Legal fees
  • Important repairs to ensure safety of the tenants (during and after a period of tenancy)
  • Renovations and updates in the house (during and after a period of tenancy)
  • Stamp duty
  • The cost of two mortgages, one for the house you live in and the house that you are buying to let. Take note that you need to have enough money to pay for these mortgages during the times when there is no rental income

2. Research and Decide Your Target Market

We have mentioned above that buying-to-rent is a business. And before starting any business, you need to decide which group of demographics you want to target your product (in this case, your property) to.

Deciding your target market is one of the most important decisions, right along with choosing the location of your property and selecting the property itself. When you choose the target market, you get a clear picture of the kind of house you will buy to let and also have an idea about the rent you would charge.

There are many groups that you can cater to, like families, students, couples, retirees or disabled people. Each of this target group and their needs are described briefly below:

  • Family: A family would need more rooms and storage space in the house, with a garden as an amenity
  • Couple: A young couple would not need more rooms, especially if both have jobs, and they would be happy with a comfy single-bedroom home
  • Student: Students would need the least space of all, and a single room would be fine with them
  • Disabled: There is a huge need for proper accommodations for the disabled and you can cater to those needs by buying a house with a large entrance so that a wheelchair can easily enter the house. After buying the house, you would need to make some upgrades like building a ramp.

When renting a house, you need to make sure that the house provides the facilities that your target market needs, and make necessary upgrades later to provide the best benefits. Research about the needs of each demographic and find out which one suits you best. If you are buying to let for the first time, then it is best to start with a small apartment for a couple or a comfy home for a family.

3. Select the Location of the Property

Once that you have selected the people that you want to target, it is time that you select the right location for the property you are going to buy. Browse through the houses listed on property portals like Rightmove, Zoopla, PrimeLocation and NeedAProperty, and look around for houses that would met your budget and the specifications for the target audience.

You need to think carefully about the city and the area in which the property would be located. Do you want it in the same city that you live in so that you can better connect with the tenant? Or do you want to buy a property in another city where there is a huge demand for the type of house that you are going to buy.

Once you have chosen the city, you need to choose the specific area in which the house would be located. Make a list of the pros and cons of buying a property there to rent, and weigh them. You need to think about the profits you would get, and should do some research about the areas in which you would get the most profitable returns on your investment.

Put yourself in the shoes of your target market. Think about what the tenants would look for when browsing for a house to rent. Look into the recent styles that are trending among your target audience. Take note of the neighbourhood and the key features that would help increase the value of your property and make it the best pick of the lot. These features include:

  • Access to regular transport
  • Safe neighbourhood
  • Good schools
  • Nearby cafés or restaurants

While browsing the houses to buy, keep in mind that you will not be the one living in that property, so think about what the tenants would like and prefer. Also research about the rent rates around the neighbourhood so that you have an idea about what rent to charge.

Which brings us to…

4. How to Calculate Rental Income for Your Buy-to-Let?

The best way to calculate the rental yield for your buy-to-let property is to divide the sum of money that you bought the property for by the yearly rent that you’ll receive from that house.

buy to let formula

For instance, if you paid £200,000 for a house, and received £1000 a month in rent, then your rental rate for the year would be £12,000, which brings your rental yield to be 16.67%. You can also simply use the

However, the problem is that this method does not account for the total cost that would occur, such as the cost for repairs, updates, insurance etc. Therefore, you need to calculate a ‘net yield’ or the true value of the rental yield that you would receive.

Some of the costs that you need to be ready for include:

  • Repairing and replacing damaged or broken items: During the tenancy, as well as when the tenancy ends, there is likely to be cases of damages that would need repairs, and as a landlord, it will be your responsibility to get them in working order again
  • Maintenance costs: The maintenance costs also need to be factored in, because it is mandatory that you have regular maintenance checks to ensure that there are no health or safety hazards
  • Insurance premium: You would have to pay an insurance premium which would differ as per the location of your property, its size and value.
  • Void periods: There will be some times after a tenancy has ended when your property will be empty. You would still need to pay the costs during this month (like mortgages) without the help of rental income
  • Estate agent fees: The brick-and-mortar real estate agents charge a lot more than the online estate agents, because the former needs to pay for the physical location that they have. They can charge from 4% to 20%.

Finally, when you have subtracted these costs from the rental yield, you will get the true yield of your buy-to-let property.

5. The Importance of Hiring an Efficient and Reliable Estate Agent

An efficient estate agent would not only take the trouble of putting up your house on the most-visited property portals in the UK, they would also take care of additional features that would make your home more attractive to the tenants. Features such as professional photography and floor plans may seem like an expensive option, but with a reliable online estate agent, it is possible in a cheaper rate than if you have it done on your own. They would also guide you in matters of negotiation and provide you a both professional and personal service. A reliable real estate agent makes all the difference when you are looking to hire an agent who would provide you an efficient service in an affordable manner. The best way out in cutting the cost for an agent’s fees is to hire an internet estate agent. Because they do not need to buy and/ or maintain a physical presence, the cost of their services is just that—the cost of their services. If you need more details about online estate agents, read this helpful post here.

Tenant Checks

Reliable online estate agencies like iMoveEstates would do basic credit checks of the tenants for you so that you can avoid having to deal with problematic tenants. Credit scores reveal a lot about an individual’s ability to be responsible and pay the rent regularly, and it will help you shortlist the most viable tenants.

6. Your Legal Responsibilities

Once you set up your house for rent, you have many responsibilities that you need to make sure to follow through, in order to be a proficient landlord. The foremost being the legal responsibilities like taxation. Since buy-to-let practice is a business, you need to declare it through Self Assessment tax return.

There are other legalities that you would need to follow as well, some of which may require an assessment of the house and a certificate. These certificates can be received at a price. The following are the most important legal regulations that you need to comply:

  • Compliant plugs and sockets: In order to protect the tenants from electrical hazards
  • Deposit protection: It is your responsibility to protect the deposit within 30 days
  • Energy performance certificate (EPC): You are required to provide an EPC to the tenant so that they are aware of the energy usage in the house
  • Fire resistant furniture and furnishings: In order to protect the residents from fire hazards
  • Gas safety certificate: In order to ensure that the house is safe from fire hazards
  • Landlord license: This license is applicable for only certain areas in the UK
  • Legionnaires disease check: In order to ensure that the house you are renting is protected from the Legionnaires disease (a fatal form of pneumonia)
  • Right to rent check: It is a legal requirement without which you cannot rent a property
  • Safely installed electrical appliances: In order to make sure that the residents are safe from electrical hazards
  • Serving prescribed information: Like the government guide on how to rent

If you fail to follow these regulations, then you would be liable for a huge fine and in some cases, imprisonment. Make sure that you have fulfilled all these legal requirements before you rent your property in the UK.

7. Where to Go for Help?

In the case that you run into a problem, you need to know where to ask for help. There are many risks associated with renting your property such as having the house empty for a long time or having terrible, horror-story-worthy tenants. Things can go wrong any time, and you need to have a plan that would protect you. Carry out some research about your rights as a landlord and the details about agreements and eviction. If you need some important resources, you can check these links:

Landlord Insurance

In order to protect your property and yourself, make sure that you have landlord insurance in place. This will ensure that you do not lose money over the damages in your property. Landlord insurance would make it easier for you to carry out your landlord responsibilities in a hassle-free manner.

If you are looking forward to rent your property that you have bought, browse these renting packages of iMoveEstates, and choose the one that suits you best! On the other hand, if you have any pressing queries that you need answered about renting process, simply contact our professionals today!

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