Buy To Let Essential Tips

Our essential guide before you buy

Detailed below you will find some of the most important areas to consider when purchasing a buy-to-let investment property.

It is vital to seek advice from experts who can assist you across all aspects of the purchase. Thrive and its experienced business partners can help you throughout the process.

 

What is a buy to let and how does it work?

A buy-to-let is a property purchased with the intention of renting it out to tenants. You can make a hefty profit as an investor of a buy-to-let property, you just need to make sure you plan appropriately and weigh up the income with the costs.

Being a landlord requires a lot of time, planning and money. You don’t want to buy a luxury property that you can’t afford to manage. Equally, you don’t want to throw money at a sub-par investment. You need a thorough understanding of your capacity, aims and finances to ensure that your venture is realistic and aligns with your budget.

Seeking expert advice at the outset is a must.

 

Rental Yield

Rental yield measures the ongoing return on investment for a property. You should always consider your potential rental yield before purchasing a buy-to-let.

 

Capital Growth

Capital growth, also known as capital appreciation, is the amount that the property increases or decreases in value over time. This is normally due to changes in the property market or improvements to the property. Working out your potential capital growth can help you decide what work to do on a buy-to-let and when could be the best time for you to sell.

Example:

  • You purchase a property for: £200,000

  • Its current market value is: £300,000

  • The capital growth is: (£300,000 – 20,000) = £100,000

 

Deposits for buy-to-lets.

A buy-to-let mortgage allows you to borrow a large sum of money to purchase a property that you plan to rent out. They function similarly to a typical residential mortgage; the main differences are that buy-to-let mortgages usually require a bigger deposit and have higher interest rates. A deposit for a buy-to-let is around 25% of the property value. Buy-to-let mortgages can vary greatly and the offers available are subject to many different factors, e.g. how much deposit you can put down, how much you can pay back every month, etc. 

 

Stamp Duty Land Tax on Buy-to-Let Properties

You pay Stamp Duty Land Tax on properties and land in England and Northern Ireland that cost over a certain amount. Stamp Duty applies to both freehold and leasehold properties, purchased outright or through mortgage financing.

If you purchase a residential property that’s not your main residence, e.g. a second home or a buy-to-let, you pay a 3% surcharge on the standard Stamp Duty rates.

Or head over to our Stamp Duty guide page for more details.

 

Maintenance Fees

Buy-to-let maintenance costs can sneak up on you. Landlords are responsible for the upkeep of the property, as well as managing the rental income. This can become hectic. You may want to consider hiring a letting agent to manage the property for you, especially if you’re often juggling multiple investments/properties.

Letting agents obviously come with additional costs; they tend to charge a percentage of the rental income plus VAT. Nonetheless, they can seriously reduce some of the day-to-day hassles associated with buy-to-let investments.

Head over to our Lettings page for more details.

In addition, purchasing a new property or an off-plan opportunity, the rigours of maintenance are reduced, and a ten-year building guarantee also should be applied.

 

Choosing the right investment for you               

It’s easy to let your personal preferences influence the types of property you buy. Why wouldn’t it? You’re buying a home. It’s important to remember you won’t live in your buy-to-let property yourself. Consider what would be beneficial as an investment and who your tenants would be.

 

Talk to an expert

A reputable investment expert will be able to tell you about the property market across various areas. They can direct you towards suitable properties, give you valuable information about the local rental market and help you narrow down your search. 

 

Set a Budget

Your budget will often determine the types of properties available to you and their locations. Take some time to work out what you can afford and what you can realistically earn from rental income. This will give you a clearer point of reference for when you research the house prices and rental rates in the areas where you plan to buy.

 

Check Your Financial Forecast

Make sure you have the financial capacity to pay for any unexpected costs. It’s best practice to budget for periods when the property might be empty, e.g. when you’re in-between tenants. Thinking ahead may force you to alter your plans, but it will give you a more solid place to start from.

 

Appeal to a Certain Type of Tenant

Think about the type of tenant you want to attract. Families will want to live close to schools, while young professionals will focus on the distance to and from transport hubs. If you want to rent your property to students, consider investing in suitable accommodation and buying properties close to university campuses.

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