Five things to consider as a landlord before investing in buy-to-let property

Being a residential landlord can be very rewarding and represents an attractive investment option against other asset classes, we take a look at the five things to consider before investing in buy-to-let property.

What could impact a landlords budget

1. Consider situations that you might face as a landlord which could stretch your budget

The Government’s Money Advice Service website gives lots of useful financial advice and prompts considerations you should take into account when taking the first steps towards becoming a landlord. The process of buying a buy-to-let property is much the same as buying a private home – you’ll need to factor in elements like mortgage costs, deposit, legal fees and stamp duty. 

Becoming a landlord is an investment, which does have some associated risks. It’s important to consider some of the possibilities when it comes to working out what you can afford after the initial investment is made. You’ll need to consider being able to budget for situations where you might be without rental income, for example during void periods between tenancies. 

You might face a situation where the tenant can't or won't pay the rent, resulting in associated legal costs for you. It's worth considering insurance, such as Landlord Rent Guarantee that can help to mitigate risk by covering missed rental payments and legal fees. 

Other things to consider are unexpected costs, such as necessary repairs and renovations (before, during and after a tenancy) along with the expected costs such as letting agents' fees and property maintenance.

2. Research and understand your legal responsibilities as a landlord

Becoming a landlord means taking on certain responsibilities, from a legal perspective as well as the wellbeing of your tenants. You’ll need to remember that renting out a property is like having your own business – you’ll need to declare income for tax purposes.

There are other legalities you’ll have to comply with too, some of which could need assessments or certifications. It's important to check whether the local authority have any specific schemes or programmes for residential landlords that you might need to comply with, so it's always worth contacting them to make sure. Current regulations include, but are not limited to, some of the below:

Not complying with legislation can lead to legal proceedings and fines, it's important to make sure that you’re prepared to invest the time, energy and money to ensuring you’re always legally compliant. If you're unsure, it's also worth considering a conversion with a letting or managing agent. 

When considering your Landlords Insurance, factor in elements like legal liability cover, such as property owners liability, public liability and employers liability. Without landlord liability insurance, you could be liable for personal injury, damage to possessions, the resulting legal costs and damages associated with any claims against you as a landlord. 

3. Understand your rights if things go wrong

It's worth doing some research on legal matters, such as eviction notices, your right and responsibilities, tenancy agreements and deposit schemes. There are several resources available for you, including:

Consider appropriate Landlords Buildings Insurance, Landlords Contents Insurance and Landlord Rent Guarantee Insurance in place to protect yourself and mitigate some of the risks you could face. Don’t forget Tenant Referencing too, you’ll want to be safe in the knowledge that your tenants are who they say they are and won’t have any problems paying their rent.  

Our latest survey of over 3,700 landlords found that 51.7% had dealt with a problem tenant in the past. If you can, try talking to other landlords and get their tips and advice on dealing with some of the difficult situations that may arise.

4. Who do you want to rent your investment property to?

An important decision during the buying process is who you want your future property to be rented to and how much you’re going to rent it for. To understand this, you’ll need to do some research on your chosen area and the types of people that are renting properties there, as well as how much they’re paying. 

Whether you’ll end up targeting families, students or professionals, for example, can determine what type of property you’ll need to invest in, what the rent might be and subsequently the rental yield for the investment.

When looking at the wider market, data from the HomeLet Rental Index provides insight to the market at a regional level, but as you start to look at areas in more detail a local letting agent will know how a market is performing and where you might want to consider as an investment. 

Where should you make your landlord investment

5. What's the best location to invest in? 

Before you set your heart on somewhere, it’s really important to carefully consider where you’re going to buy the property. Will it be in the town you live in, a nearby city or even somewhere further afield? 

Ultimately this is an investment, so you need to consider the yield and rental return. How you plan to manage the property can be a big factor - if you're planning on using a managing agent it opens up the possibly of looking further afield. 

While you may have what seems like an obvious choice in mind, you’ll need to think carefully about the pros and cons of your chosen location and how well a rented property would perform in that area.

Have a look around and do some research into the local market. Put yourself in the shoes of your target tenants and try to understand what it is they’ll be looking for from the area they live in. This could include accessible and regular transport links to major cities, vibrant nightlife, local sports clubs, good schools and neighbouring families or a large population of students – and remember, while the area may be to your taste, it won’t be you living in the property.

Get the latest landlord news and tips

Simply enter your name and email address below, and we'll send you our monthly Landlord Lowdown email - which is full of the latest news, views and tips for landlords.  

Updated: 19/10/18


Share this tip: