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What to Consider Before Investing in a Buy-to-Let Property

Are you considering making the bold move of investing in a buy-to-let property? While it can be an effective way to make money, you’ll need to enter with caution.

Faye deGavre


Apr 22, 2021


5 min read

What to Consider Before Investing in a Buy-to-Let Property

Over recent years, landlords have enthusiastically embraced the world of investing in property and buy-to-lets, attracted by the high reward potential. If you’re contemplating a buy-to-let investment, you should know it’s not a hustle for everyone. So, if you’re a buy-to-let beginner, you’ll probably be wondering two things: first, what do you need to know to make it work and second, is there good money to be made by turning landlord? Read on to find out. 

Investing in a buy-to-let property? Here’s what you need to know.

  • Location is everything

While it can be tempting to snap up a bargain anywhere that house prices tend to be more affordable, be careful: not knowing the area can lead to serious losses. Generally, it’s advisable to take on a property in your local area. If you decide to manage the property yourself, you’ll be close by if required. You can also choose to work with a local Letting Agent, which may be helpful for buy-to-let newbies or landlords looking to be less hands-on.

Finding the right area for you will likely depend on whether you’re planning to invest in flats for young professionals, student accommodation or family homes.

  • Buy-to-let mortgages require a significant deposit

While one can get a standard mortgage with a deposit of as little as 5% of the property price, the buy-to-let requirements are slightly different. Usually, the minimum deposit needed is 25%-30%, although you’re likely to secure a lower interest rate if you can put down 40%. For most lenders, you will need to earn at least £25,000 annually, too.

How many buy-to-let mortgages can I have? It’s a common question, especially for investors eager to cut their teeth. The short answer is that there is no limit. If you’re building a portfolio of properties, you’ll likely have multiple mortgages. You may, however, be limited in the number of mortgages or how much you can borrow from one lender.

  • First-time buyers may not qualify

Although first-time buyers can get a buy-to-let mortgage, the reality is that it’s extremely difficult as lenders often consider this group too risky. The lender may require a higher deposit (such as 30%) and will look at applications very carefully to understand why an applicant wants to purchase a buy-to-let property without owning their own home at the time. 

  • Landlords have responsibilities

The lustre of buy-to-let properties faded significantly in recent years after government measures made it a less attractive investment. Profit margins can often be narrow, so it pays to know everything before you parachute into the scene. 

You will be responsible for maintaining the property, which means you need to be on hand in case your tenants encounter a problem. Property owners will need to decide whether to use a Letting Agent and choose how involved they would like to be. A Letting Agent helps advertise the property, check potential tenant references, arrange the deposit and more. They can also take care of issues during the tenancy, although the expense of this extra service may impact your bottom line.

  • Not all properties are profitable

Before you start looking for properties, you’ll need to prove to lenders that renting out the property will be profitable. Look at the cost of the potential properties, the rent you are likely to achieve and work out the rental yield.

You’ll need to prove that you will still be able to pay the mortgage if interest rates increase – this is called a stress test. If you’re a basic-rate taxpayer, the rent has to be 125% of the interest, calculated at a rate of around 5.5%. For those in the higher tax brackets, this rises to 145%. 

A buy-to-let property is also subject to capital gains tax if you sell it, where you’ll be charged on any increase in the value during your ownership.

Research, research, research

The adage, “Never invest in something you don’t understand”, was never truer than with a buy-to-let. Significant financial issues can arise if you have overlooked a policy or underestimated the commitment. The more research you do, the better. Talk to others who have invested in buy-to-lets and ask them about their experiences – warts and all. Our guide for beginners on how to invest in buy-to-let property is a great starting point. 

What are the costs of being a landlord?

  • Initial costs

If you’re purchasing a property with a mortgage, the lender will likely require you to fund a deposit of 25%-30% or higher before they consider your loan application. In addition, there are the usual costs associated with a property purchase, such as the survey fee, stamp duty, legal expenses and insurance.

  • Letting costs

Before you can see any return on the investment in your buy-to-let property, you first need to spruce up the place. Clean, carry out any repairs and purchase appliances (and furniture if you’re offering it furnished). You’ll also need to arrange safety checks by qualified professionals, such as a Gas and Safety report, to comply with legislation. 

If you choose to advertise the property yourself, there will be costs to consider. There will also be expenses involved in carrying out an inventory, obtaining references and drawing up a tenancy agreement. Working with a Letting Agent can help reduce the burden of these tasks and make finding tenants easier.

  • Running costs

Not all buy-to-let properties are created equal. Some will cost more to maintain than others, depending on their age, condition and responsibilities (e.g., lifts in a block of flats). Your largest running cost is likely to be your mortgage.

Do I need landlord insurance? Yes, you will need to insure the property and its contents. And before you ask, ‘How much is landlord insurance?’, the cost greatly depends on the property and your chosen coverage. Be sure to shop around and compare at least a couple of quotes from different insurers. 

Buy your first buy-to-let

Ready to take that important step to becoming a landlord? Once you have the keys, make your property visible the moment you book a free rental valuation. With Boomin, you can drive up interest instantly and enable potential tenants to book viewings online, 24/7. Find out more on how Boomin can help rent out your house with ease.

Faye deGavre

Content Writer