Resources for planning your buy-to-let

Last updated: 08/04/2022
3 min read

A landlord planning for his new buy-to-let property

Buy-to-lets are an attractive investment for many, but if you're considering investing in property, you must consider your options carefully.

If you're investing in property – or even attempting to improve the returns on a buy-to-let you already own – being as best informed as possible is critical. Here are our top tips and resources to help you make the most beneficial plan.

Researching the market

If you're investing in buy-to-let, you must know the market you're entering. You need to be aware of the risks as well as the benefits.

Essentially, investing in a buy-to-let project means tying up your capital in a property that may experience a fall or rise in value.

In previous years, high-rate savings accounts used to beat a significant number of investments, such as property. However, interest rates and rising house prices have made many turn towards buy-to-let investments rather than fixed-rate savings accounts.

If you're investing in a buy-to-let, you'll be committing tens (if not hundreds) of thousands of pounds to a property and may typically have to take out a mortgage unless you can pay all the money upfront. If house prices rise while you own the property, you could make significant leveraged gains on your mortgage debt, but if they fall, your deposit can get hit, and your mortgage may stay the same.

Most (but not all) buy-to-let mortgages are done on what's known as an 'interest only' basis.

The higher the rental value you can receive above the mortgage repayments, the quicker you will be able to build up an emergency fund and reinvest some money. Crucially, remember that you shouldn't start reinvesting straight away. Houses often come with initial teething issues, so ensure you're prepared.

Property investment has proved profitable for many investors, but it's vital to know there can be significant pitfalls and positives. Because of this, if you know someone who's invested in buy-to-let previously, ask them about their experiences. The more research you do, the higher your investment's chance to succeed.

Choosing the right area

If you decide to opt for a buy-to-let as an investment, the location is a crucial factor in your planning process. Here, 'best' doesn't necessarily mean the cheapest or most expensive. It should instead be an area where a high volume of people are looking for properties and potentially one where prices are rising, if possible.

There are certain factors you should look for in a location. Consider the following when looking at your options:

Are there commuting options? Are the roads to main towns and cities good, or are there major transport links such as train and bus stations?
Are there schools in the area, and how good are they?
What are the local amenities like? Is a convenience shop easily accessible?
If you're buying in a city centre, are there parks nearby?

In selecting an area, you'll also need to consider the amount you can afford and the types of tenants you want to attract.

If you're looking to rent to students, you'll want a property that's easy to clean and comfortable, but there's no need to feature unnecessary luxuries. Young professionals will likely want something modern and stylish, while many families will want a blank canvas for their belongings. Finally, older renters may be slightly more concerned about safety and security. As a result, you'll want to think about the crime rates in certain areas and the availability and costs of alarm systems.

In addition, remember that allowing tenants to decorate and add pictures will make it feel more homely, making them more likely to stay for longer, which is great for any landlord as it means fewer void periods.

There are plenty of resources you can use to find the right location. The HomeLet Rental Index shows whether rental prices are rising or dropping in different regions, and you can use the Land Registry House Price Index or Halifax House Price Index to find house prices. The Ofsted School Report and Crime Statistics can help determine what the area is like.

Do the maths

Before you thoroughly pursue your investment plan, you must do the maths to calculate what you can afford.

When doing the sums, you'll have to not only think about how much the property costs but also how much you're looking to receive in rental returns to ensure your investment's financially viable.

You and your mortgage provider (if you need one) will likely want your rent to cover around 125% of the mortgage repayments. With most lenders now wanting to receive 25% of the property's value as a deposit, you'll need to be confident in your investment, so be sure the sums add up and know your price range.

The Which? Buy-to-let mortgage calculator and This is Money mortgage finder are excellent tools to determine what you can afford and find a suitable mortgage.

Remember to look for rental yields

When investing in property, you should look for income, not short-term capital growth. This means that if you're comparing properties with different values, you should compare them using what's known as their 'yield'. This is the annual rent received as a percentage of the purchase price.

So, for example, if you buy a property for £200,000 and it delivers an annual rental income of £10,000, it has a yield of 5%.

How much responsibility and time do you want to spend?

Finally, if you're considering a buy-to-let, you must decide how hands-on you want to be. Here you're choosing if you wish to rent the property out yourself or whether you want to employ a letting agent to manage the property on your behalf.

If you're a part-time or amateur landlord (someone who's a landlord but still works), a managing agent can be a great option, particularly if you don't live near the property.

Of course, any agency will charge you a management fee. But, if they're willing to deal with any problems your tenant experiences and arrange for plumbers, electricians or handymen to solve them immediately, they could be a valuable asset. Crucially, if they can deal with a problem quickly due to their network of contacts, they could keep the tenant happy and wanting to stay at the end of their tenancy. This reduces the risk of potential 'void periods' without a tenant.

However, if you live locally or have an extensive network of contacts, then you may be able to manage the property yourself. If this option suits you, and you're confident you can fulfil these duties, then many apps and tools, such as Rentr, can help you manage everything effectively. The most significant drain will be on your time.