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Buy-to-Let Guide

Buying to let is an excellent way to invest in a booming property market. Purchasing a buy-to-let property lets you boost your monthly income and make a long-term, potentially profitable investment. And if you decide to sell your buy-to-let, you can hope to make a tidy profit.

Of course, being a buy-to-let property owner comes with certain risks and many responsibilities. First, it’s vital to ensure that rent paid at least covers your expenses—mortgage payments, property upkeep, and taxes. Additionally, you have responsibilities as a landlord to provide a safe and habitable living space.

What are the essential facts to know if you are thinking about purchasing a buy-to-let property? This guide explains what is involved in being a landlord and paying the mortgage.

Buy-to-Let Guide for Successful Landlords

Like any investment, a buy-to-let property is associated with some risks. However, you can succeed in a property rental business with careful planning, choosing the right tenant, and fulfilling your legal obligations.

What is Buy-to-Let?

A buy-to-let property is one that you purchase specifically to rent it to tenants, usually in the private sector. Typically, purchasing a buy-to-let involves arranging a mortgage to finance the investment. Rent paid covers mortgage payments and other expenses involved in managing a rental property.

Buy-to-Let Mortgages

A buy-to-let mortgage is a loan to buy a property you intend to rent out. The mortgage amount usually depends on the expected rental revenue rather than your personal income. Most buy-to-let mortgages are ‘interest-only’ loans, meaning you must repay the total amount at the end of the mortgage term.

Choosing a Property to Let

Choosing the right buy-to-let property is key to your financial success.

First, it is vital to consider the kind of tenant you want. Will the property be a ‘house in multiple occupation’ (HMO) for students? Or do you plan to let the house to families or young professionals? Your decision will determine the best location to buy an investment property.

As with buying any property, location is crucial. Therefore, it’s best to buy a property in an area suitable for your tenant base. Generally, it’s also better to choose a property close to where you live unless you decide to employ a letting agent.

Furnished or Unfurnished?

A vital decision is to let the property furnished or unfurnished. There are pros and cons to each type of rental accommodation. A furnished rental property typically demands a higher rent. However, it may increase your running costs in the long term. On the other hand, an unfurnished property is less expensive to maintain, and many tenants prefer having their own furniture.

The decision of furnished vs unfurnished usually comes down to the type of tenant you want. Here are some helpful tips on deciding which is best for you:

Furnished rental property: Short-term lets, students, corporate tenants, young professionals living in expensive areas.
Unfurnished rental property: Families, long-term tenants, someone who wants a place to call home.

Choosing the Right Tenant and Background Checks

The right or wrong tenant can significantly impact your rental income. Therefore, vetting all potential candidates is crucial. It’s essential to ensure your tenant can afford the monthly rent, pay the bills and council tax. Additionally, they also need to have an excellent rental history and not be burdened with excessive debt.

Essential background checks to find the right tenant include the following:

Income
References from previous and current landlords
References from their employer
Credit history report
Ensuring tenant has a right to rent

Arranging Contracts

You should draw up a tenancy agreement once you have found a suitable tenant for your buy-to-let. This legally binding document specifies the amount of rent, when it should be paid, and any tenant obligations. It also outlines your rights and those of your tenant.

Landlord Responsibilities

Becoming a landlord brings with it many responsibilities. The tenancy agreement ensures tenants have the right to live in a safe and habitable home without disturbance. While the tenancy is in force, your tenant has more rights to the rental accommodation than landlords.

Here are a few responsibilities of all landlords:

Hold the security deposit in a government-approved scheme
Ensure there are no health hazards in the rented property
Maintain all electrical and gas equipment to the required standards
Provide an Energy Performance Certificate
Comply with the Housing Health and Safety Rating System (HHSRS)
Provide all tenants with a copy of the ‘How to Rent’ checklist
Observe a tenant’s right to ‘quiet enjoyment’

It’s vital to remember that being a landlord is a business. Therefore, you are also obligated to declare rental income and pay the appropriate amount of tax.