Decide what the property is for
Before looking at listings, decide what you want the property to do. Some landlords want monthly income now, which usually points to cheaper areas with higher yields. Others accept a thin monthly margin in the hope of stronger price growth, which tends to mean more expensive areas. Both are reasonable, but they lead to different properties and different risks.
Write down the most you are prepared to put in, the minimum cash flow you would accept each month, and how long you expect to hold the property. Every later decision gets easier with those three numbers in front of you.
Choose the area and the tenant
Rental demand is local. Look at who rents in the area: students, young professionals, families or people on lower incomes. Each wants something different from a property and pays a different rent.
- Check what similar properties actually let for, not just what is advertised, by asking two or three local letting agents.
- Look at how long listings stay on the market. Properties that take months to let suggest weak demand or rents set too high.
- Check whether the council runs selective or additional licensing, which adds cost and conditions.
- Note transport links, employers, schools and anything planned that could change demand.
Run the numbers before you view
Most first-time landlords look at gross yield, which is a year of rent divided by the price. It is a useful filter but it ignores every cost. Before arranging a viewing, put the price, the realistic rent and your costs into the buy to let investment calculator to see the cash flow after the mortgage, the cash you would need to put in, and what happens if rates rise.
Remember the extra stamp duty. Buying an additional residential property in England or Northern Ireland adds 5% of the whole price to the normal stamp duty bands, and limited companies pay it on every purchase.
Check what you can borrow
Buy to let lenders usually want a deposit of at least 25%, and they cap the loan by the rent as well as the value. That second test often decides the loan. The borrowing calculator shows both limits.
Speak to a mortgage broker early and get an agreement in principle. It shows agents you are a serious buyer, and it tells you whether lenders will accept you, your income and the type of property you are looking at. Some lenders will not lend to first-time landlords, or require you to own your own home first.
View properly
Go to viewings with a checklist and look for the things that cost money: the roof, windows, boiler, wiring, damp, the kitchen and bathroom. Ask the agent how long the property has been on the market, why the owners are selling, and whether there is a chain. The viewing checklist covers this room by room and sends what needs work straight into a refurbishment budget.
Offer, then get the purchase moving
- Make an offer based on your numbers, not the asking price, and be ready to explain it.
- Once accepted, instruct a conveyancing solicitor and apply for the mortgage through your broker.
- Book a survey. A RICS Level 2 survey suits most conventional properties; older or altered ones may need a Level 3.
- Your solicitor runs searches, checks the title and, for leasehold flats, the lease length, ground rent and service charges.
- When the mortgage offer arrives and the searches are back, you exchange contracts and pay the deposit. The purchase is now binding.
- On completion the money transfers and you get the keys. Stamp duty must be paid within 14 days of completion; your solicitor usually handles it.
Get it ready to let
Before a tenant moves in you need, among other things, a gas safety record, an electrical installation condition report, an energy performance certificate rated E or above, working smoke alarms on every storey, and carbon monoxide alarms where required. The safety certificates guide lists them.
Decide whether to use a letting agent. A let-only service finds and references the tenant; full management also handles rent collection, repairs and compliance, typically for a percentage of the rent.
Your first tenant and after
Carry out Right to Rent checks in England, protect any deposit in a government-approved scheme within 30 days, and give the tenant the required documents. Then keep records of everything: rent received, costs, certificates and repairs.
Rental income must be reported to HMRC. If you have not filled in a Self Assessment return before, register in good time after your first tax year as a landlord ends.