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Everything you need to know before investing in a buy-to-let property

Thinking of investing in a buy-to-let property? Here’s what you need to know…

1. Match the right property with the right location

The key is to find a buy-to-let property in an area people where want to live. This sounds so simple but you need to give this a lot of thought. When it comes to choosing the location, then consider its amenities, main lines of communication and employment possibilities. Then you need to find the property that best fits with the people who want to live there, be it a student studio, a two-bedroom commuter flat or a four-bedroom family home. Don’t let your own personal taste in property cloud your judgement. In my experience, tenant expectations are rising all the time these days and all buy-to-let properties need to be presented to a good standard.  

2. Do the maths

Make sure you have taken into account all the costs you are about to incur. Not just for the purchase of the property, but also any refurbishment and finance costs. You need the rent to cover all borrowings and costs and void periods between tenants.  As a landlord, you will be responsible for maintenance costs, servicing of fixtures and fittings plus buildings insurance. It’s wise also to avoid a property that requires a lot of ongoing maintenance or refurbishment prior to letting.  Capital appreciation - your property rising in sale value - is to be hoped for but cannot be guaranteed. Don’t be over ambitious: do your sums based on a realistic yield and return.  As a guide, gross yields for buy-to-let properties are usually around 5% per annum, excluding capital appreciation.  

3. Face up to your responsibilities

As a landlord, you need to be aware of the requirements that cannot be avoided (or ignored!).  There is extensive legislation that governs the private rented sector and changes frequently. The rules include safety of gas and electrical equipment, Energy Performance Certificates (EPCs), repairs and maintenance obligations, furniture standards and fire and safety requirements, plus deposit protection. As a result of this, many buy-to-let landlords choose to place the letting and management of their property in the hands of a reputable, licenced and bonded agent.  

4. Sort out the finance

Some buy-to-let investors do not need to borrow in order to finance their purchase, although this path of action may not actually give the best return on money invested.  When you have capital to invest in property, you could buy one property or perhaps split this capital to buy two or three properties, financing the remainder of the cost with a buy-to-let mortgage.  Take advice from an independent financial advisor before you choose the mortgage that best suits your needs.  

5. Talk taxes

The income from rented properties is taxable but you can offset some of the costs you incur as a landlord. These include agency fees, insurance premiums, the interest element of mortgage payments, repairs and renewals.  You should seek tax advice not only about income tax but also capital taxes, especially in the light of recent changes affecting Stamp Duty on second properties and mortgage interest.  

6. Choosing an agent

The right lettings agent can mean your buy-to-let investment ends up being as trouble-free as possible. The management fee, while important, should not be the only factor in deciding which agent to choose.  You need an agent with the structure, staffing, experience and local knowledge to fulfil the obligations as stated within their terms of business.  For added assurance and peace of mind, you should choose an agent who is a member of an appropriate professional body such as ARLA (Association of Residential Letting Agents) or RICS (Royal Institution of Chartered Surveyors) to ensure that both your asset and money are protected.  

Claire Pile is a Member of the Association of Residential Lettings Agents and is the Lettings Development and Training Manager for the Stags.