Buy To Let Property Tips with Martin Roberts

Do Your Research on the Local Market

It’s essential to do thorough research in the local area before investing in a property. Find out what the average rental yield is for the area, look into planned development and regeneration projects that could make the area more desirable, thus increasing housing demand and property prices. What are the transport links like, both for driving and public transport – how easy is it to get to nearby cities? What are schools like nearby? Does the local area offer amenities that potential tenants would need? These are all questions you need to answer before investing in a property.

Choose the Right Property Type

Your research from step 1 should stand you in good stead for the next step – choosing the right property type. If you want to rent to families, then you will be looking at houses, potentially in suburban areas, close to schools and other amenities. If you are planning to rent to students, you should look for properties near universities and with good public transport links, or close enough to walk to campus. Flats or HMOs are suitable for students or young professionals, but might not be suitable for families. When choosing the kind of property you want to invest in, consider the ongoing maintenance needs of that property and the expectations of potential tenants.

Crunch the Numbers Carefully

You need to make sure that the property you choose will give you a good rental yield. This can be calculated using this formula:

((Annual rental income – Annual expenses) / Property purchase price) x 100 = Net rental yield

Remember to factor in all costs, including legal fees, maintenance, insurance, taxes, potential void periods and other expenses when working out your net rental yield. A yield of 5-8% is considered ideal for buy-to-let properties. For this reason, you should avoid, or at least think very carefully about buying houses that require a lot of renovations and repairs, or even cheaper properties if they aren’t in a desirable area. It’s all good and well finding a bargain property, but if there is little demand for rental properties in that area, finding tenants will be hard. 

Get the Right Mortgage and Financial Advice

Buy-to-let mortgages are very different from typical residential mortgages – a buy-to-let mortgage usually demands a larger deposit and comes with a higher interest rate. However, buy-to-let mortgages are usually interest-only mortgages, which allow you to only pay off the interest every month. This principal mortgage amount is paid off when the mortgage term is complete, often by selling the property. After this time, you will have made a tidy profit from renting the property, and you can pay off the capital sum when you sell the property, ideally making some profit from appreciation too. You should consult a mortgage broker who specialises in buy-to-let mortgages to get you the best deal.

Maximise Profits Through Smart Management

You can save some money by managing the buy-to-let property yourself, communicating directly with tenants and arranging or doing repairs yourself. This is a good strategy for first-time investors or those with only a couple of rental properties to manage. However, if you have several properties or other commitments, you can save time by using a property management company. They can handle tenant issues and routine maintenance, although you would have to calculate whether that is worth it based on your rental yield and other expenses. If your profits will push you into a higher income tax bracket, it may make financial sense to set up a limited company for buying buy-to-let property, meaning that you pay a lower rate of corporation tax instead of income tax. A limited company can also offset 100% of their mortgage interest against its tax bill. I suggest consulting with an accountant who is experienced in property investment, as they can advise you further on reducing your tax bill.