How to Buy a Buy-to-Let Property

  • Apr 18th 2022

Buying a Buy-to-Let property can seem like a great investment from the outset, especially when generating an additional income stream and building long-term financial security. However, the reality is that it's never been more challenging to buy a Buy-to-Let property.

The property market has recovered from the financial crash in 2008, with property prices continuing to increase year to year from 2009 until today, especially with the significant increase seen since the announcement of the Stamp Duty Holiday by the Chancellor during the lockdown.

Property prices have seen the highest increase since the Stamp Duty Holiday announcement due to the demand from buyers vs available properties for sale. Many property sales took place behind closed doors, where Estate Agents sold properties to their client list without having to market the property.

The rise in property prices also meant that property investors were able to release additional equity and invest in more Buy-to-Let properties whilst benefiting from the Stamp Duty Holiday. However, they still had to pay the extra 3% Stamp Duty for additional homes. 

Although this is great news for long-term investors, it does make it difficult for budding investors to invest in property and for first-time buyers to join the property ladder. The initial deposit required for a Buy-to-Let property is typically 25%. For first-time buyers, it's far less with many government schemes available to help. However, in both situations, the deposit required will be significantly higher than in 2009, making it much more challenging to invest in property in the long run.

Tax relief on mortgage interest rates and the additional 3% Stamp Duty has left many landlords out of pocket, leaving enough to cover their mortgage, repair and maintenance costs. Some have even been left with losses leaving them no choice but to sell their properties.

However, investing in property does bring benefits and can become a profitable business if you invest in the right property. You also need to fully understand your responsibilities as a Landlord and the potential costs you may incur.

Many Landlords choose to invest in property for many reasons. Whether creating a profit from the initial investment, building a retirement fund, passing income, or creating a legacy that can be passed on to their children, whatever your reason to invest in property, it all starts by choosing the right property.

Location is a priority when choosing the right property to invest in, as it impacts the rental income and the type of tenant you will attract. Depending on the kind of income you want, location plays an important part too. If you are looking for capital growth, larger cities may be the right choice or an up and coming city where significant investments are being made. If you are looking for a higher rental income than capital growth, a flat in the city centre may offer just that. You might also consider HMO property in student areas or close to a hospital where you can attract hospital staff.

The type of income & tenant you want will guide you towards the kind of property you need to buy. For example, if you are looking to attract a family, purchasing a property near a good school for example, English Martyrs on Anstey Lane or Gartree High School in Oadby, will help you achieve this. Although the property might come at a premium, it will also mean the rent you receive alongside the annual price growth will reflect that. However, suppose you want to maximise the rental income from a property and attract students; in that case, you need to look at properties within walking distance from either DMU or Leicester Uni.

If the student market is the one you are looking to get into, you also need to keep in mind that only specific properties carry out a license that will allow you to do an HMO. There are also many legislative regulations to follow. Our dedicated investment team can guide you on this to help you find the right property and ensure you meet all legislative requirements as a Landlord. 

Once you have decided on a location and the type of tenant you are looking to attract, you need to look at the kind of property you want to buy. You can buy a property that is ready to go and done up, but this will come at a premium. Or you can buy a 'fixer-upper' that might be below market value and can offer capital growth once you have finished renovating the property. However, you need to keep in mind that renovating these properties can have hefty costs and can come with heavy legal expenses. But at the same time, there can be a great reward in terms of capital growth.

When it comes to decoration and whether to provide a furnished property, it all depends on the type of tenant you are attracting. In the centre of Leicester, there are many flats for rent that are fully furnished and offer a lavish decoration but command a rental premium. If you are looking to attract a family, a neutral colour scheme is your best option, as it can appeal to a wide range of people.

But it all comes down to cost. Below are certain things you need to consider:

1.   Property purchase price

2.   Survey

3.   Stamp Duty

4.   Deposit required to obtain a mortgage

5.   Valuation

6.   Mortgage cost / broker fee cost (most Buy-to-Let mortgages come with a fee whether you use a mortgage broker or not)

7.   Mortgage repayment, this can be done on an interest-only basis or a repayment basis

8.   Legal fees

9.   Set up costs, such as ensuring your property meets regulations.

10. Decoration, if you are buying a property that needs some work to be carried out

11. Furniture costs, if you are looking to offer a furnished property

12. Income tax

13. Class 2 National Insurance – if renting your property is considered part of running a business

14. Landlord Insurance

15. Maintenance & Repairs

16. Letting fees

Although the above costs can add up fairly quickly, the reward can also be high if you buy the right property in the right location.

Whether you are looking to become a Landlord or are an existing Landlord looking to grow your property portfolio, our dedicated investment team will guide you through the entire process.

From understanding your expectations on ROI (capital growth or rental income) to finding the right property in the right location to attract the right tenant, to finding the right tenant, ensuring your property meets all legislative requirements, maintenance and rent collection, you are certainly in good hands with our experienced team.

To find out more about our fully managed service, speak with our dedicated team on 0116 266 9977.