How To Find Buy To Let Property

10 Essential Tips for Beginners in 2023

FINDING THE PERFECT BUY TO LET PROPERTY

As property values soar across the UK and rental income reaches a new high at the end of 2023, you may now think it’s the perfect time to invest in property.

But property can be complicated. with plenty of landlord responsibilities, taxes, and property investment strategies to consider.

In this article, we’ll explore how to find buy to let property in 2023 with 10 essential tips every beginner investor should know to create a profitable investment.

Topics on this page include:

  • How Do I Choose to Buy to Let Property?
  • Is it Worth Being a Landlord UK 2023?
  • How Much Deposit Do You Need for a Buy to Let 2023?
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1.Understand Landlord Responsibilities

Before you even start dreaming of your buy to let home, you need to consider whether becoming a landlord is the right thing for you.

After all, being a landlord can be a complex and time-consuming role, with plenty of landlord responsibilities when renting out a property that you’ll need to meet.

These include:

  • Keeping your property safe from health hazards.
  • Ensuring all gas and electrical equipment is safely installed and maintained.
  • Providing an Energy Performance Certificate for each rental property you own.
  • Protecting your tenant’s deposit as part of the deposit protection scheme from the government.
  • Making sure your tenant has the right to rent in England.
  • Giving your tenants a copy of the How to Rent checklist.

This can get especially difficult to fulfill if you already have a full time job.

While you don’t necessarily have to be a landlord to own rental property, and instead you can hire a property management company, this will incur an additional fee and can reduce your profits.

Simply put, property investment isn’t for everyone, with people sometimes more suited to other forms of investment like stocks and shares or mutual funds. It all depends on your financial goals.

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2.Choose Your Buy to Let Investment Strategy

If you’ve decided that being a landlord is the life for you, or are happy to pay an additional fee for property management, you’ll now need to decide exactly what sort of rental property you want to invest in.

The most common types of investment property in the UK are:

  • Residential buy to let – The most standard form of property investment, where a landlord will rent an apartment or house to a tenant.
  • Student buy to let – Similar to normal residential buy to let, student buy to let is when a landlord rents specifically to student tenants. You can do this through purpose-built student accommodation or an HMO (house of multiple occupancy).
  • Commercial buy to let – When a landlord rents commercial premises, like an office block, to a business. This has a longer lease period than other forms of buy to let, but you may find it more difficult to secure a buy to let mortgage.
  • Holiday Lets – A landlord can rent out a holiday home to tourists on a short-term basis using sites like Airbnb. If you purchase a holiday home, you’ll need to get a holiday let mortgage.

While all buy to let investments are essentially the same in principle, with you earning rental income from tenants and securing a buy to let mortgage (more on that later), not all investments have the same return potential.

For instance, a purpose-built student accommodation has generally lower property prices than a typical residential property and will offer a higher return on investment from rent.

However, a residential property will provide a far higher rate of house price growth, otherwise known as capital appreciation, which is perfect for those thinking of retirement.

As such, buy to let landlords have a lot of choice when it comes to making a property investment in the UK property market, and the answer to the question “what are the best types of buy to let properties?” will depend on your own goals.

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3.Get to Grips With Buy to Let Mortgages

With house prices reaching a record high average of over £250,000 in 2023, according to Nationwide, you may need to finance your property purchase with a buy to let mortgage.

But buy to let mortgages differ from normal residential mortgages that you may be familiar with, and have their own quirks you’ll need to know about.

  1. Buy to let mortgages command a higher deposit than a residential mortgage, typically 25% of the property value.
  2. Mortgage interest is also higher.
  3. Mortgage lenders may require your rental income to be 25-30% higher than the monthly mortgage payments.
  4. You’ll likely need to earn at least £25,000 a year to be eligible.
  5. Most BTL mortgages are interest-only, which means you will only pay the interest each month without touching the overall debt. You will then need to pay the full debt back once the mortgage term ends – usually achieved by selling the property. As an alternative, you can get a repayment mortgage, but this will typically be more expensive to pay, as you will be covering both the interest and the capital debt.
  6. First time buyers may struggle to secure a buy to let mortgage as lenders will see you as a risk, so you’ll likely need to own your own home. This is crucial to be aware of if you’re asking “can you get a buy to let mortgage if you don’t own a property?”

Be sure to use price comparison sites to find the best mortgage deal, and if you have any questions seek financial advice and speak to trained mortgage advisers for more information.

4.Familiarise Yourself With Property Taxes

Like most certainties in life, landlords also need to pay tax, and this can get quite complicated with several tax changes introduced since 2017.

Due to nationwide property supply unable to keep up with high demand, HMRC have tried to clamp down on landlords by introducing additional taxes on private landlords.

The first tax you will encounter is stamp duty land tax on the purchase price of your property.

Your stamp duty bill will be more expensive as a buy to let investor, with those buying a second home liable to pay an additional 3% charge on top of normal rates.

Another big change to landlord profits has been changes to the buy to let mortgage interest tax relief.

While previously you could deduct your mortgage expenses from your rental income to lower your income tax bill, you now only get a 20% tax credit based on your interest payments.

Although this hasn’t impacted you if you’re a basic rate taxpayer, those in the higher tax brackets are now paying considerably more.

Understanding these taxes will help you know how much money you’ll need to invest in property – something that we will discuss in detail in the next point.

5.Ensure You Know the Costs of Rental Property

While many landlords will agree that property can be an incredibly worthwhile venture in 2023, it’s no secret that it can get quite costly.

When buying a property, you’ll likely need to pay a 25% mortgage deposit, stamp duty, legal fees, and Land Registry fees.

Depending on the property price, this can get very expensive, with even cheaper property on the buy to let market of around £100,000 setting you back £30k as a minimum.

But there are also ongoing costs and exit costs when you sell a property that you’ll need to be aware of.

This can include:

  • Mortgage interest payments
  • Ground rent
  • Property management fees
  • Maintenance costs
  • Landlord insurance
  • A tax bill that can include capital gains tax, income tax, or corporation tax.

While your rental income will ideally cover these expenses, the reality is that your rental property may not always be tenanted, meaning you could go stretches without earning any money – otherwise known as a void period.

As such, you’ll need to be prepared for this and set enough money aside for you to deal with any void periods that come your way.

FAQ

In an ideal world, your real estate investment will be overflowing with cash and netting you a huge profit.

But, unfortunately, not all property investments are profitable, and you’ll need to make sure you’re buying a property that generates enough rental income to meet your expenses and give you a healthy profit.

To do this, you’ll need to focus on rental yields.

A rental yield is a percentage figure that shows your annual return on investment from rent.

The higher the yield, the better, with NET yields between 5 and 6% seen as ideal.

Another form of returns you should focus on is capital growth, otherwise known as capital appreciation.

Capital growth is the increase in a property’s value over time, with you ideally selling your buy to let investment after several years and netting yourself a huge profit.

A big part of ensuring your property investment is as profitable as possible is by picking the right area.

There is huge regional variation in the UK in both rental values and property market values.

As such, it’s a good idea to shop around and research the right hotspot for you.

While you may be tempted to buy an investment close to you, it may sometimes make more sense to buy a property further afield that offers higher returns, and hire a property management company instead.

When evaluating an area you need to consider the potential behind property investing, which means thinking about:

  • Potential rental income
  • Rental demand
  • Affordable property prices
  • Future capital growth predictions
  • Average rental yield
  • Employment opportunities
  • Transport links
  • Future regeneration potential

By finding a city or region that meets all this criteria, you’ll set yourself up for the best chance of a successful investment.

Check out our guide to the best places to invest in property 2023 to learn more.

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While investing in a popular city is all well and good, it’s still vital you consider who your target tenant is and what they want out of a property.

After all, by matching your property to your tenants need, you’ll stand yourself in good stead to avoid as many void periods as possible and secure a long-term tenant.

For instance, young professionals will want a completely different style of home than young families or students.

If you’re targeting the former, it’s a good idea to invest in city centre apartments with the property close to good transport links and employment opportunities.

Likewise, young families may prefer a more rural location and don’t want to live in the hustle and bustle of city centre living.

Buy to let investors should also think about the features they offer in a property.

Research from Benham and Reeves in 2020 found that tenant priorities have changed a lot since the start of the covid-19 pandemic, with tenants now wanting fast broadband, outside space, and proximity to a park as their three most important priorities.

If you plan on making buy to let your future career path, it may be worth forming a limited company.

Limited companies can often be better for those making multiple property investments, as it can net you some serious tax savings.

For starters, limited companies don’t pay income tax, and instead pay corporation tax at a flat rate of 19% – which is especially beneficial for those in the higher tax brackets.

Although, corporation tax is set to increase in 2023, which may be worth thinking about before you opt to form a limited company.

Moreover, unlike private landlords, limited companies have 100% mortgage tax relief against their income, making profitability far higher.

You can check out our full guide of buying property through a limited company to learn more about the pros and cons involved.

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The final step for how find a buy to let property is choosing how you actually want to buy your property.

With this, you have four options.

  1. You can buy your property at auction – this will allow you to find below market prices but may be difficult for beginner investors.
  2. You can use a property portal like Rightmove and Zoopla.
  3. You can buy with an estate agent directly.
  4. You can use a property investment company 

Each of these options has its own pros and cons, so the answer to the question “how to find the best buy to let properties?” will depend completely on your investment experience and goals.

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