How to become a buy-to-let landlord

How to pick the right property, get the right mortgage, take out the right insurance and most importantly, unravel all that red tape!

Don't be put off by scare stories

Buy-to-let remains hugely popular in the UK despite the recent Government clampdown on landlord's revenues.

In fact, recent research by Sainsbury's Bank found almost one in 10 (9%) adults have shown an interest in taking out a buy-to-let mortgage this year.

If you're one of them, read on to get an understanding of what's expected of you and all you need to know before buying your first property. Accidental landlord? Head this way instead.

This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.

Get your finances sorted early

Save a large deposit

For a buy-to-let mortgage, you'll need somewhere between 25% and 40% loan to value. That can be a huge amount – from £50,000 - £80,000 on a £200,000 property.

Consider the costs

The mortgage needs to be paid each and every month regardless of whether you have tenants in the property or not, and remember that your tenants might miss payments through financial difficulties or any other problems.

You need to know you have access to cash to cover these void periods, although you can take insurance to cover rental arrears.

It’s not just the mortgage either – you may be faced with standing charges on utility bills, Council Tax, building charges, building insurance and contents insurance.

Choose the right mortgage

They may have had a difficult few years, but when it comes to buy-to-let, mortgage brokers are still by far your best route to market.

Not only that, a broker understands the complexities of buy-to let mortgages and property purchase and can offer advice and access to lenders that you simply cannot get as a direct customer.

Alternatively, you can compare buy-to-let mortgages at the loveMONEY comparison centre.

Most buy-to-let mortgages are on an interest-only basis. That means you’ll either need to sell up at the end of the term or have a solid repayment plan for when the time comes.

Pick the right property

Get the right property

Decide what type of property suits your needs, whether a four-bed house or two-bed flat for example.

Make this decision based on the rental market. What type of properties let well in your chosen location? Family homes are not always the best idea, while two-bed flats tend to let well in many urban centres.

Location, location, location

Choose the area you want to buy in based on cold hard facts, not because of an emotional attachment and not because you live there, or like the area.

As a rule of thumb, urban areas with good transport links into a town or city, plenty of local shops, bars and restaurants are good rental locations.

Think about your niche

This could be short-term leases for tenants who won't be in the area for long, or students looking for digs near their university.

Be cautious of new builds

If you are thinking of buying a new build property, it pays to be very careful indeed.

These properties, particularly new build flats, have fallen in value faster and further than other types of property.

Also if the developer or owner offers to 'pay your deposit' in the form of a discount, be wary. If they say it's worth £200,000 but they will sell it for £150,000 allowing you to effectively put down a £50,000 deposit, remember it is really only worth £150,000.

You know this, the owner knows this and the mortgage lender needs to know this. If you don't inform your lender of any discounts on new builds you will be committing mortgage fraud.

Visit letting agents

Get an accurate idea of the rents you can expect by posing as a buyer and a landlord.

Do this twice to make sure you get the truth from agents – first as a tenant looking to rent a property similar to the type you are interested in buying, to find out what the market rates for rent are (or send a friend).

And once again as a potential landlord, asking what rents are achievable and what the typical purchase prices would be on the type of property you are interested in.

Learn more about the actual purchasing process by following this link.

Be clear on legislation

Sign up to a Tenancy Deposit Scheme

When a landlord or letting agent takes a deposit from a tenant, the deposit must be protected in a Government-authorised tenancy deposit scheme.

Deposits are protected to ensure tenants get all or part of their deposit back, when they are entitled to it, and encourage tenants to look after the property they are renting.

Within 14 days of taking the deposit, you must provide your tenant with details of how the deposit is being protected. For more information, check out the GOV.UK website.

Be clear on Houses in Multiple Occupation legislation

The Government has a number of different definitions for what constitutes an HMO, but essentially it is a single property which is turned into two separate homes for tenants, though they will share main facilities, such as bathroom or kitchen.

If that sounds like your rental property, then you will need a special HMO licence. For full information, have a read of the Communities and Local Government website.

Get clued-up on other legislation

There are plenty of legal bits and pieces, including a register for landlords. You can be removed from the register for persistent poor performance in terms of carrying out repairs and returning deposits.

Other measures include mandatory written tenancy agreements and regulation of private sector letting and management agents.

Get a landlord insurance quote from Axa

Sort out the management of your property

Consider using a letting agent

The decision to use a letting agent or not can have a massive impact on the success of your investment.

Letting agents can be used to simply find and vet tenants or to completely manage the property.

The latter obviously costs more - usually ranging from 10% to 15% of the rental income. This is a significant amount but the letting agents offer some important benefits, not least the ability to ensure everything is done by the book and you cover yourself legally with your tenants, which is crucial.

Of course, you could avoid the agent altogether – as we explain here.

Get up to date on your responsibilities

If you choose to manage the property yourself, you will be responsible for finding tenants, checking tenants’ references, collecting the rent and maintaining the property and dealing with any problems.

You will also be legally responsible for carrying out repairs ensuring the safety of gas and electrical appliances and ensuring that the furniture and furnishings meet fire safety requirements.

Be cautious of new builds

If you are thinking of buying a new build property, it pays to be very careful indeed.

These properties, particularly new build flats, have fallen in value faster and further than other types of property.

Also if the developer or owner offers to 'pay your deposit' in the form of a discount, be wary.

If they say it's worth £200,000 but they will sell it for £150,000 allowing you to effectively put down a £50,000 deposit, remember it is really only worth £150,000.

You know that, the owner knows that and the mortgage lender needs to know that. If you don't inform your lender of any discounts on new builds you will be committing mortgage fraud.

Keep a lid on costs: your guide to managing your expenses as a landlord

Work out an exit plan

Decide how long you want the investment to last

Buy-to-let should always be a long-term investment. It’s those people that viewed it as a short-term, get-rich-quick scheme that are currently suffering.

But just how long you want to be involved in buy to let is up to you, and it pays to work out when you plan to sell up and move on.

Compare buy-to-let mortgages with loveMONEY now

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