Building a Rental Property Business from Scratch: A How-To Guide

This is most likely one of the most burning questions anyone has when looking at buying a rental property.

And for a good reason too!

A lot has changed over the last couple of years, with the various lockdowns and Covid-19 restrictions having a significant impact on our lifestyles and even the economy itself.

Even as we – hopefully – appear to be crawling our way back to some sense of normality, it’s still as important to consider your options thoroughly before making any final decisions.

The good news, though, is that the UK property market appears to be thriving at the moment.

Rent prices have increased across the board, with the average UK rent reaching a record high of £1,064 in February – 8.5% higher than last year. This also saw a considerable surge in average rental yields, with the likes of Manchester and Liverpool offering returns of over 7% on average.

The slight downside is that taxes have changed somewhat in the past few years, though, so you may be earning less monthly income than you would have previously.

Announced in the 2022 Spring Statement, for example, National Insurance will increase by around 1.25% from April, and some landlords may also be affected by ’stealth taxation’ - in which people fall into higher tax bands as a result of thresholds and allowances not being increased.

Some of these concerns will be covered later in this guide, but the bottom line is that it’s not impossible to make solid profits in UK property.

In fact, if done right, going into real estate can prove to be a very lucrative venture indeed. While this can also be true for other investment options – i.e., cryptocurrency or the stock market – the simple fact is that these can be a much riskier endeavour.

Property investment is a tried-and-true method for many investors for essentially one reason – it has an incredible track record for bouncing back from an economic crisis.

Look back to 2020, at the beginning of the UK’s first lockdown, and house prices in the UK saw a massive drop of around £2,000.

Fast forward to January 2022, though, and buyer demand has never been higher, seeing an increase of 23% compared to the same period last year. House prices are also on the rise, with Zoopla finding an increase of 8.1% to current UK house price growth – with the average value being £245,200.

If you haven’t realised it yet, investing in real estate is a significant commitment – one that also comes with significant fees.

If you want to learn how to invest in rental property as a beginner, you’ll need to understand the costs involved.

Whilst you may think you have sufficient funds to cover your investment, this may not be the case if additional costs and fees are involved (which they usually are).

It’s vital then that you spend some time wrapping your head around the financial aspects before you start thinking about how to start investing in property.

The most straightforward route is speaking with a financial advisor.

This will allow you to learn about the different taxes involved and give you a better understanding of all the money-related jargon involved with the property market.

Alternatively, you could spend some time researching this yourself, but to make it clear:

Due diligence is key.

After all, as we’ve established, property investment is a business venture.

If you’re looking for a way to build a rental property business without spending any money, you may find things slightly tricky.

To put it bluntly, it just isn’t going to happen.

To make a solid investment in real estate, you need to have the money to back it up.

Before you furiously click off this page, though, there are some real estate property investment tips as a beginner who may not have a huge budget to start with.

Whilst it may be tempting to just throw caution to the wind and leap straight in to claim your massive piles of money- this isn’t always the wisest (or realistic) move.

For those wondering how to start a rental property business UK, coming up with a business plan is a great way to assist your chances of success further down the line and help steer you away from any bad decisions.

What Does a Business Plan Consist Of?

Essentially, a rental property business plan is what it sounds like – an outline of what you want to achieve with this venture.

Despite what you might be thinking, this is not some massive task – you won’t be asked to write a dissertation on this.

The best business plans are the ones that are concise and to the point.

You’re going to want something easy to commit to memory.

To help, here are five aspects to think about when creating your plan:

• Where are you now? – This includes both your available finances and how much money you’re willing to spend.
• What are your goals?  – Think about where you want to get to. What are your specific aspirations, and is there a real financial goal to help you get there? Are you looking at building a property rental business and taking the bulk of the landlord duties yourself? Or do you want to just build a property portfolio with a hands-off approach, working with a rental/letting management company that takes care of all the day-to-day duties?
• What is the right strategy for you? – By picking the strategy that best aligns with your goals, you’ll be able to bridge the gap between your current situation and what you want to get out of property investment.
• How do I achieve these goals? – Once you have figured out your business model and have some sense of your planning process, you’ll need to action your business plan. Undoubtedly a daunting task to consider, the best way to approach this is to create a to-do list of every job you need to do, both one-off and recurring tasks. You could even break some of these tasks into smaller ones to constantly feel like you’re making progress.
• Where should I look to find the best property? – Finding the right location for your investment is probably one of the most important aspects of this process. There are several factors to consider, and this will be covered in this guide in further detail later on, but usually, this will depend on qualities like property price, tenant demand, and the average rent in the area. While this research can be quite time-consuming, it is absolutely crucial if you want to secure a good investment.

And this is just the tip of the iceberg; there are many other things to consider when investing in property.

See one of our latest guides for further information on building a property business plan.