- Buy To Let Advice – 10 Tips for Beginners:
- 1. Ask If The Property Is Owned By A Company
- 2. Lenders Don’t Like Certain Types Of Properties
- 3. Not Every Property Is a Good Investment
- 4. Don’t Skimp Out On Property Investing Analysis Tools
- 5. You Can’t Buy To Let Your First Property
- 6. Don’t be Scared to Leverage
- 7. Consider the Type of Mortgage
- 8. Screen your tenants
- 9. Understand your legal obligations as a landlord
- 10. Property Viewing Tips
- When purchasing a buy to let property, it’s beneficial to ask if the property is owned by a company. Due to tax changes, buying a property via a company may offer stamp duty savings, especially if it’s a ‘transfer of shares’ which attracts only 0.5% stamp duty.
- Mortgage lenders have strict criteria on property types. They often avoid lending for properties next to shops, flats in tall buildings, properties without essential amenities, or those in certain locations.
- Not all properties are good investments. The property market, like any other, fluctuates. It’s essential to conduct thorough property research, including location and the property itself.
The buy to let property investment strategy is by far one of the easier ones out there to understand and implement – not to say that it’s easy by any stretch of the imagination, it can be quite difficult at times if you’re a beginner – which is likely why many beginner investors never do further research into the topic. Unfortunately for them, they’re missing out on tonnes of little golden nuggets of information that can completely transform their property investing journey.
In this guide, we will go over some of the best buy to let advice for beginners and seasoned investors alike, tips and tricks that can save you time and help you increase your bottom line.
Buy To Let Advice - 10 Tips for Beginners
1. Ask If The Property Is Owned By A Company
When you’re looking to purchase a new buy to let property, it’s always worthwhile to strike up a conversation with the current owner, not only does this build up a rapport between you two but you can also ask whether they’re a property investor themselves and if they own the property in their own name or in a company.
Due to a multitude of tax changes over the past decade, more investors are choosing to own property via a limited company which may be great news for us. That’s because if the single property is all that the company owns (also applicable if you’re buying a portfolio) you may be better off buying the company instead, as this would be classified as a ‘transfer of shares’ for which the stamp duty will only be 0.5%.
0.5% is considerably better than the current rate for purchasing an investment property – 3% plus the standard rate. So if you’re purchasing a property that is worth £250,000, you would pay £1250 for the transfer of shares tax instead of the £7,500 for stamp duty land tax.
2. Lenders Don’t Like Certain Types Of Properties
Have you ever noticed that new build flats in skyscrapers are only for cash buyers or labelled as “for investment purposes only”? If you haven’t, I bet you’re about to jump on Rightmove or Zoopla to have a look. One of the main reasons for this is that mortgage lenders have pretty strict criteria on the sort of properties they are willing to lend you money for, and unfortunately, flats in skyscrapers don’t make the cut.
So if you’re purchasing with a buy to let mortgage, keep in mind that most mortgage lenders won’t lend you money for the following types of properties:
- Houses next to shops or flats above shops.
- Flats in a block of more than five storeys.
- A property with no kitchen or bathroom.
- Inhabitable properties – ones that have been abandoned, have roof issues, missing windows or the kitchen/bathroom isn’t in working condition.
- Properties located in council housing areas, near landfills or above mining tunnels.
Note that specialist mortgage products and other types of lending are available for some of these properties but will often require a higher deposit than the traditional buy to let mortgage. Unless you’re an experienced property investor, avoiding these types of properties is probably best.
3. Not Every Property Is a Good Investment
It’s a common misconception that just buying any property is a good investment, it’s a lot more complicated than that. You can’t pick up the cheapest property available on Rightmove and expect it to double in value over the next decade, all whilst making you a great monthly income – I know it sounds logical but I’ve met a lot of people who explain their property investment decisions by saying ‘property only ever goes up’.
The property market is just like any other investment market out there, be it stocks, bonds or crypto – it goes up, it comes down and it may even stay flat for years. Just like you would analyse a company before investing in its shares, you need to analyse each property by conducting thorough property research – this includes researching the area, the postcode and the actual property itself.
If you’re interested in a step-by-step breakdown and walkthrough of the property research process, I’d recommend checking out the following guides:
4. Don’t Skimp Out On Property Investing Analysis Tools
Conducting a detailed property analysis for each potential deal you come across will likely take quite a bit of time, and after all, time is money right? So don’t skimp out on property investment tools; sure saving £15-£22 a month is awesome but not when you’re exchanging hours of additional research in order to make that saving. Another issue with using free tools is that some of the information is outdated. For example, as much as I love StreetCheck for looking at the housing tenure, social grade and local amenities for any location, I won’t use it for checking out the employment statistics because the data is from 2011.
5. You Can’t Buy To Let Your First Property
Although you’ve probably heard one or two stories about people purchasing their first buy-to-let property whilst they were still living with their parents, there’s likely more to those stories than just that and they definitely weren’t purchased using buy-to-let mortgages because you can’t get a BTL mortgage on your first property for a multitude of different reasons, the main two are:
- First off, if you’re a first-time buyer, mortgage lenders will see you as a high-risk individual to lend to as you have no prior track record. Whilst there may be some specialist products out there, you’ll likely need to put down a larger than usual deposit, your interest rate would be higher and there will be strict criteria for your current housing conditions – for example, you live in company housing or are a live-in carer.
- For the vast majority of buy-to-let mortgages, a very basic criteria for eligibility is that you earn at least £25,000 a year. If you head over to Lendlord (our buy to let mortgage broker of choice) and you enter your wage as anything below £25,000, you’ll soon see that the number of lenders available to you drop to zero (maybe one if you’re lucky).
6. Don’t be Scared to Leverage
I regularly speak to newbie investors who have had bad experiences with debt in the past and now outright refuse to get a buy-to-let mortgage; instead they decide to patiently wait on the sidelines until they save enough money to finally purchase their first rental a decade from now.
What they fail to realise is that every year that they wait, their money is eaten away by inflation whilst house prices continue to rise. Creating a double whammy situation in which the value of their money decreases and the value of their target increases. So by the time they hit their savings target, they’ll be rather unhappy to find out that the property that once cost 100k now costs 150k or potentially more.
So please don’t be scared of leveraging via a mortgage. Plan accordingly and make smart financial decisions; if you do so, you’ll reap the benefits of property investment without ever having to worry about defaulting on your loan.
Note – It’s also worth mentioning that you can more than double your ROI by utilising a mortgage. Have a look at our cash vs mortgage comparison for a real example.
7. Consider the Type of Mortgage
When financing your buy-to-let property, you’ll encounter two main mortgage options: repayment mortgages and interest-only mortgages.
Repayment Mortgages: With repayment mortgages, monthly payments cover both the interest and the capital borrowed. This gradually reduces the loan balance, building equity over time. While they have higher monthly payments, they lead to full ownership at the end of the term.
Interest-Only Mortgages: Interest-only mortgages require payments covering only the interest, with the borrowed capital amount unchanged. This provides lower monthly payments, offering greater short-term cash flow. However, this does of course mean that you will either have to take out another mortgage when the term ends or find a way to pay off the borrowed amount. If you are a long-term investor, this shouldn’t be an issue – just let inflation eat away at the loan and invest your cash flow into either more properties or other investment vehicles.
Which mortgage type should I opt for?
When deciding on which mortgage type to utilise, you need to consider cash flow and equity-to-debt ratios.
Interest-only mortgages often provide better cash flow due to lower monthly payments but you will have a low equity-to-debt ratio at the end of the term and will need to find a way to pay back the loan.
On the other hand, repayment mortgages help to build your equity in the property over time, but they have higher monthly payments which can significantly decrease your rental income.
In general, property investors will opt for interest-only mortgages to maximise their cash flow but you should assess your risk tolerance and ability to handle potential fluctuations in property values and rental income before making your own decision.
8. Screen your tenants
Screening your tenants thoroughly is incredibly important but also takes quite a bit of time, which is why I always recommend you get a letting agent to do it for you. After you’ve heard a few stories of landlords who have had nightmare tenants that won’t leave, won’t pay their rent or treat the property like their own personal dumping ground, you’ll understand why the screening process is so important. You want to eliminate as much risk as possible with your investment – that includes the risk of having issues with your tenants.
Set out a specific list of criteria that you want your tenants to possess and hand it over to your letting agent who will handle the rest for you. Most of these criteria will revolve around affordability – things like the tenant’s income, whether they’re self-employed or not and how deep their savings pot is.
9. Understand your legal obligations as a landlord
Something that all future property investors/landlords need to take into consideration is that you’ll have legal obligations to your tenant. If you don’t take these seriously, you will be committing a criminal offence – these obligations aren’t something to be taken lightly.
- Keep your property in habitable condition, ensuring that it’s safe to stay in and free from any health hazards such as dampness.
- You need to provide an energy performance certificate to your tenant, as well as a how to rent checklist.
- Ensure that the fire smoke alarms are fitted and working correctly.
- You need to keep your tenant’s deposit in a government-approved scheme and make them aware of which scheme it’s kept in.
For a full list of landlord responsibilities, I’d recommend heading over to Gov.uk and reading their guide on renting out your property.
10. Property Viewing Tips
Last of all, there is a whole plethora of advice and tips that I can give you in regard to property viewing, they are:
- Familiarise yourself with Japanese knotweed and keep an eye out for it – this pesky weed can cause some serious issues to your property. It should be disclosed on the TA6 form by the seller but this isn’t always the case.
- Whilst you’re likely going to get a structural survey done on the property anyways, it’s a good idea to already have some knowledge on the topic and be able to pick out any major issues yourself.
- Always check the boiler – how old is it, what kind of boiler is it and how does the water pressure look?
- And don’t forget about the consumer unit, check whether it’s an old unit or if there are any issues with it that you can spot straight off the bat.
- Lastly, purchase a damp metre stick and use it to check out any suspicious looking walls, particularly around the windows and doors.
Hopefully, you’ve been able to find a little nugget or two of golden information in this buy-to-let advice guide – I can personally say that these tips and tricks have saved me a fortune, not only in money but also in time. Spending hours looking at house price growth statistics, postal code growth, property demand and other things can really take a good long while and turns many people off buy to let investing so I’d more than anything recommend utilising our recommended property analysis tools.