1. Choose the right property
Location is key so make sure you consult local letting agents to determine the supply and demand of rental properties in the area first.
The Association of Residential Letting Agents (ARLA) will give you details of its registered agents in your area and can also offer help and advice on regulations and rent levels.
Contact ARLA on 01926 496 800.
2. Choose the right mortgage
Check with your lender to see how much you can borrow. As a rule most will only allow you to borrow around 85% of the value of the property. Almost all lenders will take the expected rental income from the property into account when deciding how much to lend.
As a guide, your rental income should cover 125% of your monthly mortgage repayments.
3. Work out costs and income
Work out how much your monthly mortgage repayments will be and whether the expected rental income will exceed this. Checking out the rental prices of similarly sized/types of properties advertised in newspapers in your area will give an indication of whether you're on the right track in terms of the rent you hope to charge.
Also look at whether you could afford your mortgage if interest rates shot up and the property is unoccupied for, say, three months.
4. Consider the hidden costs
You'll have to pay solicitor's fees (approximately £900 for a £100,000 property), estate agent's fees, buildings insurance premiums, mortgage arrangement fees, Stamp Duty and possibly service charges and ground rent.
5. Budget for ongoing costs
You are responsible for ensuring that the property meets health and safety standards. Local authorities require that you comply with fire regulations, which could mean you have to put in fire doors and smoke detectors.
The Government also provides a useful
guide to the fire and safety regulations surrounding furniture and furnishings on the website for the Department for Business and Enterprise & Regulatory Reform.
6. Consider using a professional letting agent
A professional letting agent will find tenants, collect the deposit and the rent and arrange the inventory and tenancy agreements. But they don't come cheap. Expect to be charged anything between 10% and 17.5% of the gross rental income that you receive.
7. Ensure you have the right insurance
As the owner, you are responsible for insuring the structure of your property, which includes any permanent fixtures and fittings. It is vital that you check your policy as many buildings insurance policies exclude buy-to-let properties.
8. Sort out your tax position
You have to pay Income Tax on any rental income you receive, although you can deduct some expenses, and you will probably be liable for Capital Gains Tax when you sell. Always consult an accountant before entering the market.
9. Get a fully flexible mortgage
This type of mortgage can be ideal for buy-to-let as you can fluctuate your payments in line with the rental income you receive.
10. View buying to let as a long-term investment
Don't expect to make a quick profit on rental income and equity gain in the property. You should aim to hold the property for the medium to long term (five to 10 years at least).
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