The complete guide to buy-to-let
Considering a buy to let property? This haart guide will provide you with everything you need to know before taking the plunge into investment property.
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What is buy-to-let?
A buy to let property is one which a landlord purchases with the intention to let it out to tenants on a long term basis.
Why become a buy-to-let landlord?
Buying property to rent out is an investment decision. A landlord wants to make money from the property, for any number of reasons. They might want to be able to build a property portfolio, to have an additional source of income or capital, or to eventually sell the property for a profit.
Be sure you know what investing in a buy to let property involves
Landlords have plenty of responsibilities and obligations. They must make sure the property is safe for the tenants to live in; respond to any maintenance issues as soon as they arise; pay income tax, agents fees, stamp duty and other insurance costs. Landlords can usually only take out buy-to-let mortgages, which generally do not offer interest rates as competitive as standard residential mortgages.
The buy-to-let process
If you are thinking of letting a property, here are the buy to let steps you will need to follow:
- Decide whether to manage yourself or use a letting agent
- Choose between a short-term or long-term let
- Apply for a buy-to-let mortgage
- Prepare the property for let
- Put your property on the rental market
- Manage viewings and receive offers
- Prepare lettings documentation
- Start managing the property
The costs of becoming a buy-to-let landlord
Potential landlords may be seduced by the thought of the rental income they might achieve from renting out their property. However, there are many costs associated with a buy to let property that will chip away at these profits.
Purchasing a property
Setting a budget will help you determine how much you’re able to spend when purchasing an investment property. Do some research into house prices and the standard rents of the areas you wish to buy-to-let. This will help you narrow down the properties that fall into your price range.
It’s important to stick to your budget and not stretch it further; otherwise you may struggle to pay for any unexpected costs and find it hard to deal with long periods without a tenant in the property.
Additional costs to consider
Buying any property incurs extra costs, but a buy to let property has further expenses. This is what you should factor in to your calculations:
- Buildings insurance
- Contents insurance (if the property is being let furnished)
- Gas and electrical safety checks
- EPC certificate
- Mortgage interest rate rises
- Stamp duty
- Estate agents fees and legal fees
Finding a buy-to-let mortgage
A buy-to-let mortgage is different to a standard mortgage. Lenders consider buy-to-let mortgages a higher risk, so generally the interest rates are higher and the choice of mortgage products less for landlords. Lenders will want to know what your rental income will be, and you may also find that they insist on the monthly rental income being 30-40% higher than the mortgage repayment.
Getting the right mortgage
How much can you afford to borrow? In how many years are you hoping to pay it back? A lender will take account of your current income and expenditure, your age and any other capital you have, and recommend a mortgage and repayment schedule that is manageable for you.
Which mortgage best suits your present and future needs? Do you prefer a fixed a variable rate of interest? Mortgage lenders will spend time discussing this with you before giving you a mortgage illustration, with full information about the repayment costs and any other charges and terms.
Calculating rental yield
Rental yield, or buy to let rental yield, is the annual return landlords achieve from letting a property. It is a percentage figure, calculated by dividing the annual rental income by the total property investment a landlord has made.
Understanding the tax implications
The profits from renting property are taxable. You will have to pay income tax, stamp duty (when you buy your property) and capital gains tax (when you sell it), but you will be able to offset some of the costs you incur as a landlord against tax. You only pay income tax on the profit you make – so you can deduct expenses like maintenance costs, insurance and mortgage interest from rental income on your tax return.
Choosing the right investment property
Researching the buy-to-let market
Do you know your market? You need to carefully research the area where you want to buy your property. You can either do this yourself or employ a specialist letting agent to help you. If you decide to do it yourself, you will need to speak to local estate agents, employers and the local authority. Local newspapers and websites are also an excellent source of information about the demand for and supply of, rented housing.
Understanding different types of tenant
What type of tenant would you like to attract?
Families will have different needs to couples and single people. The majority of tenants are working professionals, or people working in the UK for a fixed period of time. You need to make sure they are fully referenced. If you are using an agent make sure that you profile the type of person that you wish to let your property to. At the same time you need to be mindful that the tighter you are with your requirements the longer it might take to find a tenant.
Managing your property
Self-management
If you decide to manage the buy to let property yourself, you will be responsible for:
- Finding tenants
- Checking tenants references
- Writing a tenancy agreement
- Collecting the rent
- Maintaining the property and any furniture provided
- Dealing with any problems
Fully managed service
A fully managed service, like that provided by haart, means the letting agent will take care of everything associated with renting out the property. That will begin with accompanied viewings, taking up references, conducting an inventory and securing the tenant’s deposit. During the tenancy the letting agent will:
- Conduct any repairs and deal with maintenance issues
- Chase rental arrears
- Conduct regular property inspections
- Provide annual statements and negotiate contract extensions
Rent collection service
Some agents offer a rent collection service only. The agent will advertise the property, conduct accompanied viewings, negotiate any offers and fully reference tenants. After the tenants have moved into the property, the agent will collect rent and chase any arrears, provide monthly and annual statements and negotiate extensions to the contract.
Property letting only service
Experienced landlords sometimes opt for a property letting only service. This is when the agent’s responsibilities will be limited to advertising the property, finding and referencing tenants, completing the tenancy paperwork and making sure the landlord has all the required legal paperwork.
Make sure you’re familiar with buy-to-let legislation
The rental sector is highly regulated, and new laws are coming into force regularly that change the responsibilities and duties of landlords. Stay up to date with the latest news, perhaps by becoming a member of the National Residential Landlords Association, or buy subscribing to their newsletter.
Help finding your buy-to-let property
If you are looking for a property to let, search on haart for properties in your area. We can also help with a range of property management services, advice and information about the lettings process.
Considering a buy to let property? This haart guide will provide you with everything you need to know before taking the plunge into investment property.
What is buy-to-let?
A buy to let property is one which a landlord purchases with the intention to let it out to tenants on a long term basis.
Why become a buy-to-let landlord?
Buying property to rent out is an investment decision. A landlord wants to make money from the property, for any number of reasons. They might want to be able to build a property portfolio, to have an additional source of income or capital, or to eventually sell the property for a profit.
Be sure you know what investing in a buy to let property involves
Landlords have plenty of responsibilities and obligations. They must make sure the property is safe for the tenants to live in; respond to any maintenance issues as soon as they arise; pay income tax, agents fees, stamp duty and other insurance costs. Landlords can usually only take out buy-to-let mortgages, which generally do not offer interest rates as competitive as standard residential mortgages.
The buy-to-let process
If you are thinking of letting a property, here are the buy to let steps you will need to follow:
- Decide whether to manage yourself or use a letting agent
- Choose between a short-term or long-term let
- Apply for a buy-to-let mortgage
- Prepare the property for let
- Put your property on the rental market
- Manage viewings and receive offers
- Prepare lettings documentation
- Start managing the property
The costs of becoming a buy-to-let landlord
Potential landlords may be seduced by the thought of the rental income they might achieve from renting out their property. However, there are many costs associated with a buy to let property that will chip away at these profits.
Purchasing a property
Setting a budget will help you determine how much you’re able to spend when purchasing an investment property. Do some research into house prices and the standard rents of the areas you wish to buy-to-let. This will help you narrow down the properties that fall into your price range.
It’s important to stick to your budget and not stretch it further; otherwise you may struggle to pay for any unexpected costs and find it hard to deal with long periods without a tenant in the property.
Additional costs to consider
Buying any property incurs extra costs, but a buy to let property has further expenses. This is what you should factor in to your calculations:
- Buildings insurance
- Contents insurance (if the property is being let furnished)
- Gas and electrical safety checks
- EPC certificate
- Mortgage interest rate rises
- Stamp duty
- Estate agents fees and legal fees
Finding a buy-to-let mortgage
A buy-to-let mortgage is different to a standard mortgage. Lenders consider buy-to-let mortgages a higher risk, so generally the interest rates are higher and the choice of mortgage products less for landlords. Lenders will want to know what your rental income will be, and you may also find that they insist on the monthly rental income being 30-40% higher than the mortgage repayment.
Getting the right mortgage
How much can you afford to borrow? In how many years are you hoping to pay it back? A lender will take account of your current income and expenditure, your age and any other capital you have, and recommend a mortgage and repayment schedule that is manageable for you.
Which mortgage best suits your present and future needs? Do you prefer a fixed a variable rate of interest? Mortgage lenders will spend time discussing this with you before giving you a mortgage illustration, with full information about the repayment costs and any other charges and terms.
Calculating rental yield
Rental yield, or buy to let rental yield, is the annual return landlords achieve from letting a property. It is a percentage figure, calculated by dividing the annual rental income by the total property investment a landlord has made.
Understanding the tax implications
The profits from renting property are taxable. You will have to pay income tax, stamp duty (when you buy your property) and capital gains tax (when you sell it), but you will be able to offset some of the costs you incur as a landlord against tax. You only pay income tax on the profit you make – so you can deduct expenses like maintenance costs, insurance and mortgage interest from rental income on your tax return.
Choosing the right investment property
Researching the buy-to-let market
Do you know your market? You need to carefully research the area where you want to buy your property. You can either do this yourself or employ a specialist letting agent to help you. If you decide to do it yourself, you will need to speak to local estate agents, employers and the local authority. Local newspapers and websites are also an excellent source of information about the demand for and supply of, rented housing.
Understanding different types of tenant
What type of tenant would you like to attract?
Families will have different needs to couples and single people. The majority of tenants are working professionals, or people working in the UK for a fixed period of time. You need to make sure they are fully referenced. If you are using an agent make sure that you profile the type of person that you wish to let your property to. At the same time you need to be mindful that the tighter you are with your requirements the longer it might take to find a tenant.
Managing your property
Self-management
If you decide to manage the buy to let property yourself, you will be responsible for:
- Finding tenants
- Checking tenants references
- Writing a tenancy agreement
- Collecting the rent
- Maintaining the property and any furniture provided
- Dealing with any problems
Fully managed service
A fully managed service, like that provided by haart, means the letting agent will take care of everything associated with renting out the property. That will begin with accompanied viewings, taking up references, conducting an inventory and securing the tenant’s deposit. During the tenancy the letting agent will:
- Conduct any repairs and deal with maintenance issues
- Chase rental arrears
- Conduct regular property inspections
- Provide annual statements and negotiate contract extensions
Rent collection service
Some agents offer a rent collection service only. The agent will advertise the property, conduct accompanied viewings, negotiate any offers and fully reference tenants. After the tenants have moved into the property, the agent will collect rent and chase any arrears, provide monthly and annual statements and negotiate extensions to the contract.
Property letting only service
Experienced landlords sometimes opt for a property letting only service. This is when the agent’s responsibilities will be limited to advertising the property, finding and referencing tenants, completing the tenancy paperwork and making sure the landlord has all the required legal paperwork.
Make sure you’re familiar with buy-to-let legislation
The rental sector is highly regulated, and new laws are coming into force regularly that change the responsibilities and duties of landlords. Stay up to date with the latest news, perhaps by becoming a member of the National Residential Landlords Association, or buy subscribing to their newsletter.
Help finding your buy-to-let property
If you are looking for a property to let, search on haart for properties in your area. We can also help with a range of property management services, advice and information about the lettings process.