8 Questions Every First-Time Buy-to-Let Buyer Needs to Ask

Like the idea of being a landlord? Owning a buy-to-let property can still be a great investment – if do your research. With new landlords facing more risks than ever, it’s vital to get clear on what’s going to work best for you.

Buy-to-let means buying a property for tenants, not you, to live in. As the landlord, you make money from the rent – as long as it’s higher than the monthly buy-to-let mortgage repayments, of course – and/or when you come to sell the place.

Here are the key questions we recommend you ask yourself when planning a successful rental property investment.

1, Where do I buy?

Location is every bit as important in a buy-to-let property search as it is when buying your own home. “Invest locally” is our advice to first-time buy-to-letters. You know the market well, and it will be easy to meet prospective tenants and keep an eye on your investment. All of which means more peace of mind.

That said, certain areas, especially in England, are dependably strong renters markets. University cities, for example, with thousands of students, like Edinburgh, Liverpool, Leeds, Swansea, and Manchester, promise some of the UK’s highest rental yields (see question no.7). The consistent influx of new students every year are a big draw for landlords.

When you’ve chosen an area to focus on, get on the phone to local letting agents. They’ll know what kind of properties are most in demand, the average house prices, and what they rent for.

2, New build or an older property?

Modernised homes typically rent out quicker than older ones. All new builds in the UK are covered by a 10-year home warranty and insurance guarantee that protects the owner against all sorts of issues, including construction problems.

In the first two years, any faults that don’t meet the warranty provider’s technical requirements have to be corrected by the builder. You won’t pay a penny. After that, the warranty covers you against certain structural defects and smaller issues, such as the double-glazing, internal plastering, and the staircase.

While older properties are likely to be cheaper, they may need money spent on them to get them into a rentable state. On the plus side, places that need improvement present you with an opportunity to renovate them cheaply and quickly boost the value of your investment.

3, Flat or house?

It depends on the level of stress you can handle. A house will probably have more potential maintenance and repair demands because it has external walls and a roof. But a flat will have ongoing service charges. Make sure you know what they are, and whether they’re likely to go up, and when. The most popular type of property in rental areas is a two-bed flat.

4, Who do I want as tenants?

Who you have in your property not only directly impacts how easy – or not – being a landlord is, but all of your plans. Many lenders, for example, put restrictions on mortgages for student properties.

Who do you see as your ideal tenants? What are their needs? If it’s students, they’ll want a good value, non-plush place close to their university, while young professionals tend to prefer somewhere modern, airy and stylish.

A family will typically need to be near a good school and have space and plenty of storage for their belongings, as well as the freedom to put their mark on the property and make it their home. The more at home they feel, the longer they’re likely to stay, which is good news for you.

It’s very important to do reference checks on all prospective tenants to avoid trouble down the line. Skip this step at your peril.

5, What are the transport links like?

If you’re planning to buy in or around London, or any city for that matter, research the local transport links. Easy access to public transport, especially the Tube in London, will be a big selling point. Like buyers, renters are willing to pay more to live near a public transport station.

Are there new transport infrastructure projects being discussed? They’re likely to spark a sharp upward trend in (sales and) rental prices for you. Get in as early as you can.

6, How low can I go?

As a buy-to-let investor know that you’re in a strong position to negotiate a discount on the property price. Just like a first-time buyer, you’re not in a chain, and that’s very attractive to a seller. So haggle hard on sale prices and don’t feel you need to love a property. You aren’t going to live there – it’s an investment.

7, What’s the rental yield and affordability?

Do the maths thoroughly before you start your search in earnest. Figure out what your monthly rental yield will be – that’s the income you’d make on a property expressed as a percentage on the building’s value. As a benchmark, 5% a year is considered a good rental yield.

Your mortgage application will also consider affordability. In other words, whether you can keep up with mortgage payments while the property is empty. As a rule of thumb, it’s smart to budget for a place being empty for at least two months in any 12. Consider all costs, such as agent fees, stamp duty, repairs, etc., when working out the affordability.

8, What capital gains might I get?

Although you’re initially looking at rental income as your key return on investment, long term capital gains and property price increases can be very nice too. So invest in up and coming areas.

Word of warning: buy-to-let properties are not exempt from capital gains tax (CGT), due on any increase in value when you come to sell. CGT is paid at 18% or 28%, depending on your tax bracket. Other profit-eating costs you’ll face include insurance premium tax, and an extra 3% on stamp duty.

Property investing still makes people money. Sometimes a lot.Talk to those who’ve done well and ask them for tips, and which pitfalls to avoid.

Going in with your eyes wide open like this will boost your chances of securing a successful buy-to-let investment. Good luck!