Buying a Buy To Let property can be a great way to generate income and build wealth over time. However, it’s important to do your research and choose the right property carefully. Finding the right rental property will give you the best chance of a successful and profitable investment, so be sure to read on below as we talk through the most important things to look for when buying your Buy To Let property. We’ve also included some important extras that you’ll need to think about before investing in property.
Location of Buy To Let Property
Location is important when buying a Buy To Let property for a number of reasons. Firstly, you’ll want to ensure that there is adequate rental demand in the area so you’re able to find tenants quickly. This should make the tenant-finding process easier and reduce the likelihood of void periods.
Secondly, buying in a desirable area may mean you can charge higher rents, however, you’ll likely also have to pay a higher price for the property (see rental yield in the next section for more information on this topic).
Thirdly, if you’re investment strategy is partly based on future capital growth, choosing a desirable area is a safer bet. Sought-after locations are more likely to weather any downturns in the market and increase in value over time. It should also be easier to sell and realise your profits when the time comes.
So how do you find a good location? Here are some factors to consider:
- Transport links. Tenants want to live in areas with good transport links to their work, schools, and other amenities. This includes both public transport and road networks.
- Amenities. Tenants want to live in areas with a good range of amenities, such as shops, restaurants, bars, and parks.
- Schools. If you’re targeting families as your tenants, you may want to choose a location with good schools.
- Crime rates. The lower the crime rates the better.
- Regeneration areas. If you can find a Buy To Let property in an area that is about to be regenerated, you may be able to get a good deal and benefit from capital growth in the future
Rental Yield of Buy To Let Property
The rental yield illustrates the potential profitability of a property relative to its value. It’s often one of the first things landlords consider when comparing potential property investments. To work out the rental yield, you take the expected rental income and represent it as a percentage of the property’s value.
Generally, the higher the rental yield the better. A higher rental yield means you should be able to cover costs, such as mortgage repayments, insurance, and maintenance, and still generate a profit. It also makes the property a more attractive investment for potential buyers in the future, making it easier to sell when the time comes.
To learn more about rental yield, including how to calculate and use it, please see our guide, Rental Yield Explained – How Much Can You Make From a Buy To Let?
Type of Property & Tenant
The type of property is up there as one of the first factors to consider when looking for a Buy To Let investment. It’s important to understand that rental yield can vary greatly between property types, even in the same location. For example, flats usually offer higher yields than houses. However, on the flip side, houses often provide greater potential for capital growth. Maintenance costs are also likely to vary greatly depending on property type – a new build flat will likely have far lower maintenance costs than an old build house for example.
Perhaps most importantly, the type of property will often dictate the type of tenant you’ll get, so you’ll need to bear that in mind when making your decision. For example, families are more likely to rent houses, while young professionals are more likely to rent flats. If you’re thinking of renting to students, you’ll likely want to find a large house with plenty of bedrooms and communal space. This type of property is called a ‘House of Multiple Occupation (HMO)’ and there are specific regulations and licences you’ll need for this type of rental.
Condition of Property
The condition of the property is closely linked to several other factors we discuss in this guide. For example, a property in good condition is more likely to provide a larger rental yield, require less maintenance, and be more in demand with prospective tenants.
However, the condition of the property you choose may also be influenced by your investment strategy. If your plan is to get tenants in as soon as possible, and then profit from rent and/or capital growth over the long term, then you’ll likely want to look for a property in good condition. However, if your plan is to profit mostly from capital gain in the short term, but you want the option of renting the property out as well, then you may want to look for a project property that you can fix up.
Here are some specific things to look for when inspecting the condition of a Buy To Let property:
- Roof. Is the roof in good condition? Are there any leaks?
- Windows and doors. Are the windows and doors in good condition? Do they close and lock properly?
- Electrics and plumbing. Are the electrics and plumbing in good working order?
- Kitchen and bathroom. Are the kitchen and bathroom in good condition? Are all of the appliances working properly?
- General condition. Is the property in good general condition? Are all the fixtures and fittings in good working order? Are there any obvious signs of damage?
Patio, Garden, Terrace or Balcony
Having some sort of outdoor space has become increasingly popular in recent years, especially since the COVID-19 pandemic. Tenants with pets and families may look for a property with a garden, whereas young professionals or students may be happy with a patio, terrace or balcony. Outdoor space isn’t a must for every Buy To Let property, but it’ll likely increase the demand, rental yield and potential for capital growth.
Off-Street Parking
Off-street parking isn’t essential, but having a driveway, carport or garage is certainly important to some tenants. Not only is it more convenient, but it can also offer more security. Plus, tenants can often save several hundred pounds a year as they won’t have to pay for parking permits or higher insurance premiums.
Costs fall into two categories, the costs involved with purchasing your Buy To Let property and the ongoing costs of running it. For buying your property, you’ll need to consider the purchase price, stamp duty, solicitor fees, survey fees, mortgage broker and product fees, and any initial renovation costs. When it comes to running your rental property, you’ll need to consider the ongoing mortgage repayments, maintenance costs, lettings agent fees and landlord insurance.
Taxes
Understanding tax implications is important when looking to buy a Buy To Let property, and when devising our investment plan. When buying your property, the main tax you’ll want to be aware of in the UK is Stamp Duty, which is higher when you’re buying a rental property than when you’re buying your primary home. When it comes to your investment plan, you’ll want to consider current Income Tax rules for your rental income and Capital Gains Tax rules for when you eventually sell your property. Our mortgage advisors can help explain how these taxes work, but we always recommend speaking to an accountant or financial advisor to fully understand your specific tax implications.
Eco Credentials
Finding a Buy To Let property that is eco-friendly is another factor that is becoming increasingly important when it comes to future-proofing your investment. Eco regulations are likely to become more strict in years to come, so finding a property that is already up to date in this regard may save you hassle and money down the line. Tenants are also becoming more conscious of their carbon footprint and the rising costs of energy, so choosing a property that is eco-friendly may increase demand and rental yield.
Insurance
Landlord insurance is a specialist policy that can cover everything from accidental damage to loss of rental income. You can choose the level of cover that suits your needs, but we recommend speaking to our insurance team to ensure you and your property are adequately protected.
Buy To Let Mortgage
Unless you have considerable capital, you’ll likely need a Buy To Let mortgage to purchase your investment property. We recommend speaking to a specialist Buy To Let mortgage broker to see how much you can borrow before looking for any properties, otherwise, you could waste time looking for properties that are outside of your budget. In fact, we should be able to arrange a mortgage in principle for you so you can put down a stronger offer when you find a property you like. Buy To Let mortgages do work a bit differently from traditional mortgages, so to learn all about these products, please read our guide, ‘How Do Buy To Let Mortgages Work‘.
The Bottom Line
If you’re thinking of becoming a landlord, it’s important you understand what kind of property is likely to produce a consistent profit via rental income and/or capital growth. There are plenty of factors to think about, as we’ve discussed in this guide. Perhaps the most important are location, rental yield, property type and condition. If you would like more information and advice for buying your first Buy To Let property, please feel free to contact our property team at Michael Usher Sales & Lettings. If you would like to find out how much you can borrow with a Buy To Let mortgage, please contact our mortgage team at Michael Usher Mortgage Services.
At Michael Usher Mortgage Services, we’ve been helping landlords throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of Buy To Let mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
Talk to a mortgage advisor for FREE
Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will
depend on your circumstances but will be agreed with you before
proceeding.
