Buy to Let
Top tips for buy-to-let success
Are you considering a buy-to-let investment? If so, speak to our expert buy-to-let team and find out where to invest and the potential yield your purchase could offer.
With over four million households occupied by private renters in the UK, it's easy to see why investment in buy-to-let properties is seen as favourable. Here are just some of the benefits of investing in buy-to-let property.
1. Be open minded with your search location
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 local area. Instead, you should do plenty of research into the rental yields available not only in your immediate area, but also in surrounding towns and cities.
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.
2.What to look for in a buy-to-let property?
When it comes to investing in buy-to-let properties, there are a number of things you should consider:
Your budget - Like any investment, you need to decide how much you can afford to invest. Once you know your budget, you can do the calculations to ensure the potential rental income can cover your costs.
Your tenants - Think about who you will be renting to as this will impact the type of property to invest in. For example, will you be looking to rent to families, students or young professionals?
You location - Where you invest will impact the types of tenants you attract. For example HMOs are better suited to students and universities, whereas families will be looking for properties closer to schools.
Your rental income - A buy-to-let property is a financial investment, so taking the time to understand the local market will help you understand the potential income your property could yield. By understanding the local market, you can ascertain if the potential rental income will cover all your landlord costs.
3. Be sure of tenant demand
Investing in a buy-to-let property in an area without tenants who want to live there is a situation no landlords 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.
Think about who you will be renting to as this will impact the type of property to invest in. For example, will you be looking to rent to families, students or young professionals?
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!
4. Pick a property that is easy to maintain
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.
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.
5. Consider which properties are easiest to let
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.
6. Long-term property is a good bet
Despite the uncertainty surrounding the housing market, long-term property investments are a good bet. Traditional bricks and mortar have a greater ROI compared with depositing savings in a bank. Average property values are still higher than they were 10 years ago, making long-term property a safer bet than flipping properties.
7. What are the responsibilities of a buy-to-let landlord?
As a landlord you have a legal responsibility to ensure your buy-to-let property is fit for habitation and your tenants are safe. You must:
Meet safety standards
Every buy-to-let property must have a fire alarm installed on every floor of the dwelling and carbon monoxide detectors must be placed in any rooms with a coal fire or wood burning stove. Gas appliances must be issued with a gas certificate and all furniture must meet safety standards and have the appropriate safety labels displayed.
All electrical items must be PAT tested to ensure they're compliant and the water supply must be working properly to ensure it's free from Legionella bacteria.
Have an EPC
All buy-to-let properties must have an EPC certificate and the rating must have a minimum rating of E. EPCs last for ten years, so you don't have to renew it for every tenancy.
Check for right to rent
Landlords have a legal obligation to ensure that tenants have the official right to reside in the UK. If you rent out a property to an illegal immigrant, the penalty is an unlimited fine and up to five years in prison.
Lack of compliance can mean hefty fines and even prison sentences. With over hundreds of laws and 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.
For more information regarding your landlord obligations please contact us.
8. Maximising rental income
We will review your current rental income and help to ensure you're getting the best possible yield. We can also advise on minimising void periods between tenancies.
9. What type of returns are there on a buy-to-let property?
When becoming a buy-to-let landlord, you'll need to consider the type of return you require. For each property you'll need to decide whether you want a capital growth or rental yield as each has different advantages depending on what you're looking for.
Capital growth - The increase in the value of the property over the medium to long term. This suggests the property is an investment for future sale to either invest in another property that will have greater gains or to cash out and use the money for another investment.
Rental yield - The income made from the property. Yield is expressed as a percentage against the current value of the property. 5% is a good rental yield, although HMOs can achieve between 12% and 15%.
10. Find a suitable mortgage deal/How buy-to-let mortgages work
Unlike a home buyer's mortgage, a buy-to-let mortgage is based on the expected rental income from the prospective property. Typically, lenders will need the rental income to be between 25-45% higher than your mortgage repayments.
In addition, lenders will require a deposit of around 25% instead of the lower deposits often found with a residential mortgage. Interest rates for buy-to-let mortgages are often higher too and many lenders will charge a product fee.
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.
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.
11. Consider other costs
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:
- Deposit for the property
- Solicitor Fees
- Stamp duty tax/Higher rate of stamp duty Higher rates of Stamp Duty Land Tax - GOV.UK (www.gov.uk)
- Referencing / credit checks
- ICO registration
- Relevant safety certificates
- Energy performance certificate
- Potential maintenance costs
- Deposit Protection Scheme registration
- Letting agents fees
- Insurance costs
12. Look into landlord insurance
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. Please speak to a member of our lettings team for more information.
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.
13. Educate yourself on tax
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.
Inheritance Tax
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.
14. Think about what a letting agent can offer
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 Milburys, 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.
We offer landlords different types of services, depending on how hands on (or hands off) you want to be. Please take a look at our landlord brochure for more information.
15. The benefits of buy-to-let
Still plenty of growth: We're seeing an increase in growth in previously underdeveloped areas, such as rural towns and villages, as well as areas of cities that are tipped for gentrification. With more businesses allowing remote working, there are plenty of investment opportunities throughout the country away from large CPDs and commuter belt suburbs.
Generate a steady income: One of the main reasons to become a buy-to-let landlord is the steady stream of income that can not only pay the mortgage on the property but also provide you with an income stream.
High demand for private rentals: Renting is still popular and often a necessity for many people who can't afford to buy. This makes the rental market a competitive place to be for tenants; properties are often let within 10 days.
Why choose Milburys to help with your buy-to-let property
With offices throughout South Gloucestershire and Gloucestershire, Milburys has the knowledge you need for not only your local buy-to-let market but the private rental market as a whole. It's this invaluable expertise that allows us to work alongside landlords like you to ensure you maximise your investment.
Although there is a lot to process in this article and it may seem overwhelming, being a landlord can be very rewarding! We help our landlords on an annual basis, so if you have any buy-to-let questions or need further advice, then please contact us as we would love to help you on your property journey!
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