Whether you are a seasoned landlord or simply harbour ideas of becoming a property investor, you are probably aware that picking out a buy-to-let property requires an entirely different approach than finding your forever home. From calculating rental yields to attracting suitable tenants, there are several important considerations when choosing a property to let. Stamp Calculator will go through all you need to know.
To Calculate Stamp Duty in the UK, use our Online Stamp Duty Calculator.
How Do I Budget For A Rental Property?
Rental properties usually involve substantial deposits unless you’re a cash buyer, which means you will also be taking out a mortgage. Therefore, affordability is the first thing you need to address.
- Mortgages: Buy-to-let mortgages are more expensive than standard mortgages and require a minimum deposit of at least 25% of the property’s value. Furthermore, the best rates often come with high arrangement fees.
- Rental Yield: Rental yields are how much you earn from a property investment. Lenders usually want the rent to amount to between 125% and 145% of your mortgage payments. So if your mortgage payments are £500, the rental income would need to be between £625 and £725.
- Upkeep: Remember to budget for the maintenance of the property and for periods when the property might be sitting empty between tenants.
What Makes A Good Buy-To-Let Investment?
This depends on what your overall aim is – Are you mainly focused on long-term capital growth or renovating a property to sell on in the future. If so, you want to look for a property in an area with strong growth potential. Maybe you want to receive a monthly income while you own the property which means choosing a property with the potential for a healthy rental yield.
The ideal investment property may be completely different to what you would buy for yourself. Whilst you may love older properties, these can come with hefty maintenance bills which are less than ideal for running a business.
If you want a property with broad appeal, think about the following:
- House Or Flat? – This will determine the type of tenant you’ll get. Young professionals or singles may want an easily maintained flat but a growing family may rather rent a house.
- New Build or Not? – There may be fewer issues with a new build property and they are less costly to maintain, but older buildings have more character and may be cheaper to buy, particularly if they need some initial work doing.
- Layout – A large communal space may suit students, but families may want gardens and more bedrooms for children.
- Gardens have a fairly broad appeal – provided tenants are willing to maintain them. For some, it could be an unwanted hassle.
Use our Online Stamp Duty Calculator to Calculate Stamp Duty in the UK.
How Is Rental Yield Calculated?
Rental Yields are calculated as a percentage of the property’s value; generally, yields of 5% or more are most attractive to landlords. Whether or not this is achievable depends on where you buy and the rental costs in that area.
For example, a rental income of £10,000 per year on a property costing £200,000 produces a 5% yield. A rental income of £20,000 a year on the same property produces a 10% yield, and so on.
The average UK yield is 5.2%, but London yields are often lower due to the comparatively high property prices.
Think about if you want to rent to families, students or young professionals? Then consider what is most important to your chosen demographic? Modern features, good schools, public transport links? Or good sized bedrooms near a university and local bars?
Maybe make a list of areas where you might be interested in buying. Starting close to home means you know the area and can keep an eye on the property. However, if you’re going to pay a lettings agent to manage the property anyway, consider looking further afield.
Look at key stats for the areas that are of interest to you. Research the local housing market, trends, and demographics by speaking to estate agents. Ask what prospective tenants are looking for and how popular your chosen area is with the type of people you want to let to.
Other Things To Consider
- Can you cope financially if your property is empty for a period of time?
- What will you do if your tenants don’t pay? Look into Landlords insurance.
- Will you use a letting agent?
- If not, you will need to do written agreements, take personal information, references etc yourself?
- If you use a letting agent and the property is un-tenanted will you have to pay letting agent fees? Don’t forget you will also have to pay your mortgage.
- Do you have a contingency budget for repairs?
- Tenancy agreements should be legal documents, you will need to have these drawn up
- You have many responsibilities to your tenants.
- Your property should pass relevant health and safety and fire checks:
- Gas safety certificates for all appliances
- Energy Performance Certificate (EPC)
- You will need specific landlord insurance
Stamp Duty On Buy To Let Properties
When you’re buying a property to let out, you’ll have to pay 3% extra in stamp duty. The main exception to this is people who’ve never owned a property before and are investing in buy-to-let property as first-time buyers
Second home and buy-to-let stamp duty rates are tiered, like residential stamp duty rates. You can check out the current buy-to-let stamp duty rates for investors in England and Northern Ireland in the image below, and find out how much you’ll pay with our stamp duty calculator and our additional dwelling supplement calculator.