Getting started in buy-to-let: a step-by-step guide for new investors

Buy-to-let is still an enticing option if you want to purchase a second home, or grow a property portfolio, and rent your property out to tenants. Perhaps you’ve become an accidental landlord and decide to garner a rental income from your property with the hope that its value appreciates over time. Buy-to-let isn’t without risks. It’s certainly not a quick win. It can, however, be a good long term investment strategy.

Navigating the complexities of the property market may seem daunting for newcomers. But with specialist advice and guidance, you can make a positive property investment that generates a decent rental income. This guide will take you through the process, and it’ll help you to make informed decisions.

Our step-by-step guide to buy-to-let investments

 1.    Researching and setting investment goals

It’s really important that you do your research to make informed decisions. It pays to take your time thinking about what you want and how you’ll achieve it. Are you looking to establish a multi-property portfolio or planning to buy a single property to provide an alternative income stream? Perhaps you’ve inherited a property or are combining homes with a partner. Determining your investment goals will clarify the next steps of this process. Buy-to-let can meet any one of those financial aspirations, but it’s vital that you conduct your due diligence before jumping into a property search.

Start assessing the local property market (or whichever area you’re considering). Understanding the property market and current trends will help you to identify your best investment opportunities.

2.    Financing the investment

Any investor knows that you need to understand your numbers. Set your property budget and then choose the right financing option. Is your goal to earn a regular rental income or achieve capital growth, for example? Getting your finances right at the outset will maximise the returns on your investment in the following years.

There are various financing options open to buy-to-let property owners. The starting point is how you’ll pay for the property - personal savings, mortgage, loan or through a company. There’s no ‘one size fits all’ mortgage either - buy-to-let or residential; interest only or repayment for example.  Knight Frank Finance provides a personal broker service and can find you the right mortgage, no matter how complex your requirements.

Generally, lenders apply a calculation based on the annual rent for your property and the cost of your mortgage. The rental income must exceed the cost of the mortgage, by between 125% and 145%. They want to be sure that you can pay the mortgage if the property’s empty between tenants. They’ll also factor in whether you or a company own the property.

Don’t forget that there are additional costs on top of the price of a property. There’s Stamp Duty, legal and broker fees, valuation fees and more, as well as taxes.

It’s a complicated business - one that’s seen vast changes over the past 20 years. We highly recommended consulting an expert in this field to get personal financial advice that’s tailored to your individual situation.

3.    Choosing your property

Once you have financing sorted, search for properties that meet your investment criteria. Work out your potential rental yield too. That’s the rental income you’d get expressed as a percentage of the property’s value.

Who’s your ideal tenant? Figure out if you want to rent to families, corporates, students or local individuals. Each of these will have different needs and preferences. Families are likely to want good local schools, parks and facilities nearby. Corporate clients will want a proximity to transport links and their workplace. Similarly, students will want to be near their educational establishment as well as transport links, shops and entertainment.

When choosing your property, have that ideal tenant in mind. It’s important that it meets their criteria as well as your own.

To attract that ideal client, it can pay to present your property in the most appealing way. Knight Frank Interiors offer world class design and furnishings and will style your space exquisitely to maximise its appeal to potential tenants.

4.    Understanding your legal and tax obligations

It’s not only about rental income. Landlords have outgoings, tax obligations and legal responsibilities too.

Tax: you’ll be taxed on your rental income. The rate depends on your tax band. When you sell the property, you’ll need to pay Capital Gains Tax.

Compliance: your property must meet current regulations including gas, electrical and fire safety. You must fit smoke and carbon monoxide alarms, curtains and blinds. If you include furniture, it must meet fire safety standards.

Legal: you’ll need a tenancy contract (usually an assured shorthold tenancy agreement), deposit protection scheme and to undertake right to rent checks.

Ongoing, you need to maintain the property to a decent standard and ensure it’s at an appropriate energy efficiency level. Then there’ll be admin, regular checks and repairs. And don’t forget insurance too.

5. Managing the property

Financing and purchasing the property is only the start of buying to let.. Finding and screening appropriate tenants, managing the paperwork and payments, and collecting rent each month can be time-consuming. You’ll need to be available to deal with your tenant’s questions, concerns and demands ongoing.

Many people prefer to outsource their property management. Letting your property with an agent can take a weight off your shoulders. You’ll regain valuable time as well as peace of mind.

Our lettings experts can guide you through the rental process. From finding your ideal tenant and rental income to responding to the day-to-day demands of your property, our experienced team will manage your property with care.

Take your next step towards becoming a landlord with our help

This step-by-step guide outlines what’s involved in buying to let and becoming a landlord. It’s a lot to think about and consider.

You don’t have to go it alone. We’re here to help. Our rental specialists bring a wealth of experience in managing a diverse range of properties. You’ll have a single point of contact who’ll get to know you, your property and ultimately, your tenant. They’ll simplify this complicated process for you, advising and supporting you along the way. Talk to one of our expert team about your property needs, or subscribe to our landlord newsletter for monthly updates.