11 Top Tips for Buy-to-Let Property Investors

Important to know

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Every buy-to-let property investor wants to make a profit from their investment. When approached with the right strategy, property investing can be a rewarding and lucrative endeavour, offering a significant return on investment. 

Becoming a buy-to-let investor comes with its fair share of challenges. Therefore, making a profit from your investment is going to take a lot of work.

Here are eleven tips you should consider before venturing into buy-to-let property investment. Let’s dive in. 

#1. Keep an Open Mind While Searching for a Location

One mistake many landlords make while buying a second property is to restrict their search to be within the place they reside. The thought behind this choice is the belief that it is easier to manage the property once it’s within proximity to where they live. 

Therefore, it’s crucial to conduct thorough research before deciding where to purchase the property. This is because other locations may offer better deals, such as lower prices and higher rental yields.

For instance, you can purchase a property at a price that is 25 per cent less than its value in your neighbourhood and still make more profit even if the rental yield is 10 per cent less. 

Your proximity to the property plays no role in determining the investment yield. Therefore, your location consideration should be broad. Properties in high student population areas and major cities tend to bring more yield. This is because of the high and for properties in those areas.

#2. Consider the Cost Implications

An investor will incur several costs in managing a rental property. In addition to the mortgage interest, other costs should be considered when calculating the investment’s profitability. 

Here are some additional costs to factor in:

  • Agent management and finder fees
  • Building insurance
  • Property repairs
  • Advertising fees to let out the property
  • Cost of maintaining the property exterior
  • Interior cleaning costs 
  • Landlord’s insurance
  • Renovation costs
  • Any licencing costs

While you can cut down on some of the fees by doing the work by yourself, this may take a lot of time and effort. To know how much cost you will incur,  it is ideal to calculate your monthly mortgage cost.

#3. Be Certain of Tenant Demands

No landlord wants to be in a situation where they have a buy-to-let investment without remnants willing to line in the property. It is, therefore, important to ensure that the demand for buy-to-let properties in the location outweighs the supply. That way, you can be sure to get tenants you can let the property to. 

Additionally, you can target a specific type of tenant, like students or young families. It will also be advantageous to pick a property that is within proximity to local amenities like restaurants and stores with easy access to bus and train links. Always put yourself in the tenant’s shoes and envision what they would like before purchasing a property.

#4. Choose a Property You Can Easily Maintain

Costly maintenance is one factor that can eat deep into rental profits. Before buying a property, look into how much it will cost to maintain it. 

Some properties, especially older properties, require extensive ongoing maintenance and renovations. To be on the safe side, it is best to steer clear of these, as you will likely incur more costs. 

#5. Settle for a Great Mortgage Deal

You may need a mortgage for your buy-to-let purchase. In that case, it is best to secure an agreement in principle (AIP) early. 

Having a suitable mortgage deal that caters to your peculiar circumstances is vital, as this will go a long way in ensuring your property investment is profitable. Our specialist mortgage brokers are always available to provide you with every information you may need to find the best mortgage deals suitable for your situation. 

It’s important to note that the mortgage for buy-to-let properties is calculated based on the expected rental income. However, the lender may also consider other income sources, such as your salary or other investments, in making a decision. This means that your overall financial situation will be taken into account when applying for a mortgage. 

#6. Put Every Cost into Consideration

You will incur several costs on your buy-to-let mortgage. It is ideal to factor in these costs in order to avoid being taken unawares. Some of the costs may be one-off, which you will be required to pay before sealing the deal, while others will be recurring.

Here are some of the costs to keep in mind:

  • Stamp duty tax
  • Cost of Insurance
  • Putting agent’s fees
  • Gas safety certificate
  • Registration for deposit protection scheme
  • Credit checks
  • Property deposit

#7. Consider Engaging the Services of a Letting Agent 

Leaving the property in the hands of a letting agent comes with several benefits, including staying informed about the latest legislation. This saves the landlord time that would otherwise have been spent managing the property. 

A letting agent can be a valuable ally, helping landlords find the ideal tenants, collect the rent on their behalf, and take charge of the full management of the property. Their expertise and services can provide a sense of security, freeing up your time and ensuring your property is in good hands. 

#8. Get Informed about Property Tax

People tend to shy away from tax because it isn’t an exciting topic. However, understanding the different taxes our property will be subject to can make a huge difference. 

Here are common taxes you should know about:

  • Tax levied on rental profits: every buy-to-let landlord is required to report their annual rental profit to HM Revenue and Customs (HMRC). Landlords will be required to pay tax on the net rental income after deducting allowable expenses. It is, therefore, ideal to read up on how rental income taxes are calculated or consult with a tax expert for better understanding. 
  • Capital Gains Tax: if you sell off your buy-to-let property at a profit, you will be eligible for property gains tax. Capital gains tax is applied on buy-to-let properties or second homes only.
  • Inheritance Tax: If you have plans of putting up an inherited property for rent, you will need to be familiar with inheritance tax. An inheritance tax can be as much as 40% of the property’s value. Therefore, it’s best to speak with a tax expert before deciding on whether selling the property instead is your best bet. 

#9. Take Into Consideration Landlord Insurance

While it’s not a legal requirement, getting landlord insurance is a smart move. It’s like having a safety net for your investment. If you incur damages on your property due to natural disaster, or loss of rent, your landlord’s insurance will have you covered. 

Most mortgage lenders require active building insurance as a condition of approving your mortgage. Contents insurance will also come in handy if you intend to fully furnish the house before putting it up for rent.

#10. Get Acquainted with Property Legislation

As a property investor, many legislations will affect your investments. Therefore, it is crucial to get familiar with these laws. You will be required by law to carry out the following:

  • Safely install electrical equipment in the building and ensure they remain safe
  • Ensure that the property is free from any health hazards
  • Run a background check to ensure tenants are eligible to rent the property
  • You will need an Energy Performance Certificate, so get one
  • Ensuring every tenant has a “How to Rent ” Government checklist.

#11. Work with an Experienced Mortgage Expert

Investing in buy-to-let properties and succeeding at it can be very challenging, especially for first-time investors. This is why you should work with a mortgage expert

Working with a mortgage expert will save you money, time, and effort. It will also ensure you have access to the best products that will suit your unique needs.

Going Forward

Buy-to-let property investments can be profitable when investors are armed with the right information. Adhering to the tips provided above will help ensure you make the most of your property investments. 

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Luca Bertolino

Mortgage Expert

Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.

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