Buying a property to let in the UK is not a simple task. It requires organisation, efficiency, and commitment. What’s more, the costs of buying a buy-to-let property are not all grouped together as one. There are several crucial factors and costs you need to consider before becoming a landlord.

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Read our tips on buying a property to let and how you can become an organised and reliable landlord.

What is a buy-to-let property?

Buy-to-let is an investment where you buy a property to rent out to a tenant. Once you buy the property and begin renting, you’re a landlord responsible for looking after the tenants and the property.

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Becoming a landlord is no small feat. It’s a long-term investment that requires organisation and commitment. 

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That’s why we’ve compiled a list of the top 5 calculations you need to consider before buying a property to let.

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1. Calculate the amounts of your buy-to-let mortgage

Like any mortgage, there are rules about who can get a buy-to-let mortgage. Typically, lenders expect you to have a good credit score, earn over £25,000 annually, already be a homeowner and can offer a deposit on a buy-to-let property that’s at least 25% of the property cost.

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This means that you’ll need to calculate how much you can afford to pay a deposit on the mortgage. Unfortunately, buy-to-let mortgages have a higher rate of interest than residential mortgages, which is why it’s important for you to consider the affordability of being a landlord. The smaller the deposit, the higher the fees and interest rates to pay off the mortgage.

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There are maximum amounts that you can borrow for a buy-to-let mortgage. This is often based on the rental income of the property. For example, if you charge £1000 a month in rent, you could get mortgage payments of £800 a month. This way, every month you profit £200.

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However, with a buy-to-let mortgage (or if you use a letting agent) there are extra fees to pay out. As a landlord, you are responsible for your property, the tenants, and any additional fees tied to landlord insurance or deposits and you need to be mindful of how they will affect your overall income.

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2. Check how much you will be taxed

Part of being a landlord is paying the relevant taxes for owning a buy-to-let property. Here are some that you may encounter and to factor into the costs of a buy-to-let property:

• Income tax - The amount you charge your tenants for rent will be taxed at your tax band.
• Capital gains tax - When you sell the property you have to factor in the effects of capital gain tax. This is because you will have profited from capital growth of the property increasing in price as time passes.
• Stamp duty -  Depending on the property value, you’ll have to pay a certain percentage of stamp duty tax. The higher the value, the higher the percentage.

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3. Purchase landlord insurance and work out how much it’ll cost

If you’re new to being a landlord or not, protecting your property with insurance is very beneficial. There are several types of policies you can get and they’re worth reading into:

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• Buildings insurance - This covers the cost of repairing or rebuilding your property if it’s damaged in a fire, flood, storm, falling trees, or vandalism. It will also cover malicious damage by tenants.
• Contents insurance - This protects all contents against theft or damage. It includes items such as furniture, televisions, carpets, and anything owned by the landlord.
• Rent guarantee - Similarly, this covers the cost if your tenants’ circumstances change and cannot pay the rent, possibly because of a loss of a job. As the landlord, this insurance ensures that you’ll still receive an income.
• Landlord liability insurance - This includes cover for any injury to third parties or damage to their property. As a landlord, you are responsible for ensuring your property is adequately maintained so that these issues do not occur. But if they do, this insurance is in place to cover it.

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You can read more about landlord insurance here.

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Considering what sort of insurance you need, and how much the policy will cost is an important step to becoming a trustworthy and reliable landlord.

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Insurance is important to have as a landlord because it protects your investments and your income if anything happens with the property or tenants. It provides peace of mind and means there’s one less stress for you as a landlord because unexpected costs or loss of rent are covered.

4. Carefully consider the location of the property

Of course, where you choose to purchase a buy-to-let property affects the price you will pay. The price will increase depending on the area, the type of building (detached, semi-detached, terraced), if it’s a new build, and a long list of other features including if there are schools and greenery nearby etc.

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You also must consider the location of the property because - as the landlord - you have to manage it. Factoring in travel time to the rental property is therefore essential because you might not want to have a long commute time. 

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Otherwise, if you’re planning on using a letting agent, you can look for a property further afield and ask them for advice on what areas have a higher demand for rental properties. This way you have a high chance of getting good tenants in an area that are always searching for rental properties like yours.

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5. Find good, reliable tenants and choose your rental income

After assessing your outgoing expenses, including the monthly buy-to-let mortgage, landlord insurance, taxes, deposits, and any additional fees for letting agents or repairs to the property, you can decide what you will charge for rent.

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Ideally, the monthly rent should at least cover the costs outlined above. This will ensure that you receive a monthly profit from being a landlord of a rental property. By estimating these costs and what your rental income will be, it gives you an insight into what to expect in the long term. 

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Additionally, if you find tenants that will reliably pay their rent and trust to not damage the property, even better! If you choose to work with a letting agency, their expertise may aid you in finding the right tenant for your property.

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But, if you have Rent Guarantee Insurance you can rest assured that your rental income will still be paid even if your tenant cannot pay their rent.

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How Lets Insure can help

If you are considering buying a property to let, Lets Insure is here to help. We offer Rent Guarantee Insurance, Home Emergency Assistance, and Deposit Replacement Insurance across the UK. Becoming a landlord is no small feat, but with our expert protection and compliance for landlords, you can trust that your rental property is in safe hands. 

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You can sign up to our services for free or contact us with any questions you may have and we will be happy to help!  

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