A guide for landlords: how to choose a buy-to-let property

By Helen Jackson 6th May 2022

Whether you’re a seasoned landlord looking to add another property to your portfolio or are brand new to the world of buy-to-let (BTL), purchasing a new property will always be a big decision and a big investment.

That’s why it’s important to know what you’re looking for before taking the plunge and parting with your cash.

In this guide, we’ve enlisted some help from an experienced property investor as we explore what you should be looking for when purchasing a buy-to-let property.

What you should look for in a BTL property

So you’ve decided you want to purchase a property to let it out, well, here are a few things we’d recommend considering before signing on the dotted line.

Location

We all know location is crucial when it comes to buying property, but choosing an area you’re already familiar with can make things much easier.

According to Matt Cottle, a seasoned landlord and property investor at Property Investment Advice, there are benefits to investing in the area in which you live.

Matt says, “I always invest if possible within three miles of my property, just because it’s easier to service and maintain the relationship with the property and the tenant.”

So, if it’s possible to buy in your local neighbourhood, it might be worth considering.

Can you afford to maintain the property?

Financially, it’s not just the initial layout for the property you’ll need to consider; you’ll need to check whether you can realistically afford to modify and maintain the property if required.

“Doer-uppers” present exciting opportunities, but if the property does require a lot of work, you need to ask yourself — do I have the funds to carry out a full renovation?

Remember, you won’t make any money on the property until you’ve landed a tenant, and very few will be sniffing around a ‘working progress’.

So, make sure you know what kind of project you’re taking on. Maybe you’ll be better suited to something you simply need to paint and maintain.

Will you be able to re-sell?

If your plan is to rent the property out, you might not necessarily be thinking about the future and reselling.

Again, this largely comes back to location, location, location. Suppose you’ve managed to snag yourself a bargain because the house is opposite a builder’s yard. Think long-term. Is it sellable?

If you plan to keep the property forever, maybe it’s not a big deal. However, you can never predict the future and what your personal circumstances might look like further down the line, and it’s always sensible to have an exit strategy.

Is the layout workable/attractive for prospective tenants?

Just because you can’t stop thinking about purchasing a beautiful period property you’ve seen doesn’t necessarily mean it’s a wise investment.

You can’t view a property as your home and what would work for you/your family.

You need to choose a property which would work for the average tenant or target your ideal tenant, whether a young professional or a family of four and start thinking about what they’d want in a home.

It might not be a viable proposition if you have to make substantial changes to the layout to make it work for the tenant.

Rental yield

This is possibly the most important question you’ll need to ask yourself — is this property going to make me money?

To determine if the purchase is a viable option, you need to know how much profit (or yield) you’ll make from your rental property.

Average monthly rental rates can range from £560 in the North East of England to £1,583 in London. But this is all relative to the amount of investment you have made and will make in your property.

Rental yield is the percentage of profit between your overall costs and the income you’ll receive from letting out your property.

The UK’s highest and lowest rental yields by geographical area are the North West of England (4.41%) and London (2.9%), with the UK average sitting at 3.63%. So make sure you do your research and set your rent accordingly.

Additional things to consider when purchasing a BTL property

So, now you know what you should be looking for in a property, what other things should you consider?

Manage the tenancy yourself

This might not be possible for everyone, but if you do live locally and you can oversee the tenancy, don’t use an agent, says Matt. “

There is a common misconception that the agent will ensure that rent is collected and that they’ll ensure maintenance etc., is carried on the property, but the buck still stops with the landlord.

So why pay somebody else 10%, or more, of your gross income to do a job that is easily done yourself?”

Financing the purchase

Have you thought about how you’ll finance your property purchase? There are many different ways to gain access to the cash needed.

Sometimes speed is of the essence. If you have a strong exit strategy explaining how you plan on repaying your loan, you may be able to secure a bridging loan to secure your purchase quickly.

But you should consider all your funding options,so, here are a few alternatives:

Remortgage

If you already own another property or properties, you could release equity to fund your new purchase by renegotiating your mortgage.

However, you should be aware that this can be a lengthy process (usually between six and eight weeks) and can incur fees in the form of exit fees, solicitor fees etc.

Using personal savings (or getting a loan from family)

Maybe you’ve accumulated a fair amount of savings over the years, have a supportive family member, or have recently come into some inheritance?

While this might only be an option for a few, this is definitely the quickest and easiest way to purchase your new property. It’s your money, no strings attached.

Private investor

Perhaps you come across someone willing and able to invest their own money into your purchase.

A private investor is someone who could rapidly accelerate your purchase, usually in exchange for a percentage of the equity and ongoing rental yield of the property.

Read more about alternatives to bridging finance.

Choosing the best tenants

So, you do all your research, secure the perfect property to add to your portfolio and make all the appropriate modifications.

Of course, this all means nothing if you take on nightmare tenants. Ensuring you have reliable tenants is such an essential part of the whole process.

To overcome this final stumbling block, Matt suggests carrying out your own tenant checks, “the tenant doesn’t just live in your house, they pay your mortgage too, so it’s really important to know that the person you are trusting is going to be good for the rent payment.”

For more guidance on this, check out our recent guide on how to choose a residential tenant.

Hopefully, this guide has given you a bit of food for thought when it comes to buying your buy-to-let property.

Becoming a landlord can be an exciting time, but you need to think everything through and do your research before taking the plunge.

If you’re looking to finance your purchase, compare bridging loan specialists in our directory.

Here’s more information about becoming a residential landlord.