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What Is Buy To Let
Buy To Let Areas
#capital_growth
Property Types
Buy To Let Rules
What Is Buy To Let
Buy To Let Areas
Capital Growth
Buy To Let Property Types
Buy To Let Property Rules

If you’re wondering how to make money from property, look no further than buy to let. Buy to let investment is one of the most popular and lucrative investment methods. By purchasing a buy to let property, investors can generate attractive returns and benefit from ownership of a valuable asset in the UK property market.

Before getting started with buy to rent, however, there are certain things you need to know about. Take a look at our detailed guide filled with in-depth buy to let tips and advice to help you get started on your investment journey. Whether you’re asking yourself ‘is buy to let a good idea for me?’ or want to explore the best place to buy to let UK cities have to offer, you can find all of this and more in our guide to buying property to rent.

1. Make sure you understand the basics of buy to let

You might be an experienced investor who just wants to brush up on their buy to let property knowledge, or you could be familiar with property investment and have started looking for an opportunity, but still feel unsure on certain things. On the other hand, you could be neither of these and have no knowledge of buy to let whatsoever.

We all have to start somewhere, and understanding the basics of the buy to let business is one of the most crucial buy to let tips when beginning your property journey. If you’re a buy to let first-time buyer, read these following answers to some commonly asked questions.

What Is Buy To Let Property Investment
What Is Buy To Let Property Investment

What is buy to let?

Buy to let is a term that refers to purchasing a property for the purpose of letting it out to a tenant. Buy-to-let investors buy a property and make money from the rent paid by their tenant. These properties can either be purchased outright or with a buy to let mortgage.

Buy to let property has been popular since 1996, growing increasingly more prevalent over time. By 2007, there were over a million outstanding buy to let mortgages, increasing from half a million in 2004. As of 2019, buy to let property investment is considered one of the best property investment strategies for those who want to make lucrative returns.

How does buy to let work?

In a nutshell, buy to let works in three simple steps: The investor purchases the property of their choice, finds a tenant who will agree to pay them regular months rental instalments, and then receives a return on their investment through these rental payments.

Over time, those who invest in buy to let can pay off their investment using the money they earn through rental returns. Then, if they hold on to the property and decide to sell it at a later date when valuation reveals an attractive price, they could maximise their returns through capital growth. This means that the value of their buy to let property has grown over time, allowing them to sell the property for a higher amount than the initial purchase price.

A lot of the time, those who find a property for investment purposes will choose the option of using a company to invest in buy to let. These companies, like RW Invest, specialise in offering developments that have been specifically created for investors, focusing on properties with the best buy to let rates, and in the best buy to let areas. The investor will then work out whether they wish to use a buy to let mortgage or pay in full for their buy to let UK property. You can find out more about the benefits of buying property through a company in our buy to let news update guide.

Three Steps of Buy To Let Property
Three Steps of Buy To Let Property

What is a rental yield?

Rental yields are a commonly used term in relation to buy to let. A rental yield is a percentage figure that highlights the rental returns an investor is likely to achieve. The higher the better, as higher percentages mean more attractive returns.

A rental yield is calculated by taking the yearly rental income generated from a buy to let property and dividing this by the property’s purchase price. It’s important to focus on rental yields that are as high as possible when you look for a buy to let property to invest in, as this figure can mean the difference between a lucrative and attractive long-term investment or a disappointing venture.

Should I buy to let? Is buy to let a good investment?

After learning more about buy to let property investment, you might be asking yourself – should I buy to let? Is buy to let a good investment for me?

There are ways of knowing whether buy to let is the right property venture for you. If you are interested in making an investment but want something more tangible than stocks and shares, property provides a welcome alternative. However, you also need to understand the element of risk involved, and be conscious of market changes that could affect you.

As a first-time buyer, buy to let can seem like more hassle than it’s worth, leading you to wonder ‘is buy to let worth it?’. To truly succeed when you invest in buy to let, you need to be willing to tie your money up for a long period of time and understand that property prices can fluctuate. Buy to let isn’t for the faint-hearted, and before getting started you need to not just understand, but also accept the risk that comes with BTL.

You could have found the perfect UK property in one of the best buy to let areas and with the best buy to let mortgage to buy it with, but would still be at risk of potential hazards along the way. Some of the most common risks that come with buy to let include market changes that could cause your property to decrease in value, and potential void periods. A void period is essentially a period of time where you don’t have a tenant in your property, and miss out on rental payments.

While these things could negatively affect your investment for a short period, the benefits of buying a buy to let property far outweigh these risks. Once you feel confident and are prepared for any risks, you should move forward with your buy to let UK investment to take advantage of the opportunities on offer

Buy To Let Rental Yields
Buy To Let Rental Yields

Top Buy To Let Tip: Seek advice from property experts to talk through whether buy to let is right for you.

Take notice of the advice we offer you in this buy to let guide which will definitely help you gain more knowledge of property investment. However, if you’re thinking of finding a buy to let property for sale, it’s also a good idea to get first-hand advice on how to buy to let effectively.

Property experts such as a property investment company, property management company, or financial advisor, will be able to give you more in-depth guidance on securing an attractive investment. This way, you can find an instant answer to any queries and maybe even find your ideal BTL property in the process.

2. Establish the best buy to let areas

When it comes to the UK investment market, buy to let property investment can be extremely successful and rewarding. That is, however, if you choose the right rental market location. Researching the best buy to let areas to invest in is one of the most crucial steps in knowing how to build a property portfolio that works.

Certain cities and regions in the UK are considered buy to let property hotspots, while others are performing at a disappointing rate in comparison. Over recent years, the north-west region has been deemed the best place to buy to let in the UK. The north-west, home to Liverpool and Manchester, was voted one of the best buy to let areas of 2018, 2017, and beyond.

So what makes buy to let property in Liverpool and Manchester rank so highly for buy to let, and how can you identify buy to let property hotspots for yourself?

Liverpool Investments

Look at rental yields

Now that you know more about rental yields from the last section of this buy to let guide, you’ll be able to better identify a good yield from a bad one. This is such a key part of buy to let investment, as without high rental yields, you won’t be able to generate the kind of desirable returns you’d like.

Part of the reason why Liverpool and Manchester buy to let property investment is so popular is the rental yields. Manchester boasts average yields of 5.55 per cent, while Liverpool generates averages of 5.05 per cent.

While Liverpool and Manchester are some of the best buy to let areas for rental yields, they aren’t the only UK locations that can generate these high figures. When finding the best place to buy to let, UK city centre areas are usually a good option. In Leeds, for example, city centre postcodes such as LS3 have been known to boast yields of 9.28 per cent on average. City centre property investments usually perform highly when it comes to buy to let yields, as they’re more in demand, which means average rents are higher in cost.

Whenever you decide on an area you’d be interested in investing in, take some time to research the average rents and rental yields for the area. If you have the information available, you should also work out potential yields for your particular investment by investigating the costs of average rent. Without doing this, you’re missing out on getting the most out of your buy to let property investment.

Tenant Demand for Buy To Let
Tenant Demand for Buy to Let

Consider tenant demand

Tenant demand is a huge part of the decision-making process when finding a property in the best place to buy to let. UK cities have seen a shortage of properties available to meet levels of demand, especially from younger tenants such as students and young professionals. Today’s young people are struggling to buy their own home, which means they’re renting for longer periods. Without demand from those who need to find a rental property, your buy to let venture would suffer from void periods and, most likely, low yields.

If you’re looking to find a buy to let property for sale in one of the best buy to let areas, Manchester is a great city to explore when it comes to demand. Manchester has an ever-growing population, with over 80,000 students, and an overall population of more than 531,470 people. This high demand has played a big part in Manchester’s recent rise in rental costs, resulting in a 5.76 per cent growth.

To find out whether the area in the UK that you’re interested in for buy to let investment has good levels of demand, you should look into population statistics. This kind of information can be easily found online. For example, details on student numbers are offered by the university websites for each city which will help you find out the best place to buy to let student accommodation.

 If a city’s population statistics suggest significant long term growth over the years, along with a high population of young people, this could be a good indication that levels of demand will be high.

Manchester Guide
Manchester Guide

Think about capital growth

While rental returns are the main attraction of buy to let investment, when thinking about how to buy to let in the UK, investors should also incorporate capital growth. Capital growth, otherwise known as capital appreciation, is the growth in value of a property over time.

As touched on in the last section of this guide, high capital growth can benefit buy to let investments if the investor chooses to sell their property further down the line. This way, if the property has seen an increase in value, the investor will receive a return on their investment due to earning more for the property than the price they initially paid.

When you’re looking for the best buy to let areas, remember to factor in the potential for long-term investment capital growth. Areas with a high level of growth are usually those with big regeneration schemes underway. Regeneration is when plans are made to improve a city by redeveloping it, either through transforming current attractions or introducing new ones.

A good example of recent UK regeneration is that seen by Liverpool, which has included schemes such as the £1 billion Liverpool One development. Completing in 2008, Liverpool One played a big part in the city’s economic growth and still thrives today as Liverpool’s most popular shopping centre. Future plans for the city include schemes like Liverpool Waters and the redevelopment of the Everton football club stadium.

North West Capital Growth
North West Capital Growth

When you look at house prices in Liverpool over the years, it’s evident that regeneration in the city has positively impacted capital growth and led to the city’s reputation as one of the best buy to let areas in the UK.

The north-west is the UK’s leading region when it comes to capital growth. From July 2017 to July 2018, house prices in the north-west showed an increase of 5.6%. The UK experienced an average growth of 3.1% during the same period, which shows that the north-west region is exceeding expectations and leading the way as one of the biggest buy to let property hotspots in this regard.

House price growth is perhaps the main factor that puts people off the option to invest in buy to let London property, with the area seeing negative growth over the years compared to other UK cities. The only area of the capital which seems to have seen growth when it comes to London property prices is North London, with the average selling price having grown by 5.60 per cent in the year to November 2018, exceeding other areas like South and East London.

If you want to make the most out of your investment in buy to let property and benefit from not just rental returns but also high returns later in life, make sure you take some time to consider the capital appreciation prospects in your area of interest. Look at the average growth rate in both the city and the region as a whole, and take into account any regeneration plans that are in place.

Northern Powerhouse House Prices
Northern Powerhouse House Prices

Top Tip: Use online tools to help you choose the best buy to let areas

Did you know that you can use specialist online tools to help you work out the best areas for UK property and buy to let? Go Compare have their very own tool allowing you to compare two UK cities and look at statistics like average house prices, rental cost growth, average yields and more. A bespoke blinds and shutters brand, Thomas Sanderson, has also created a buy to let property hotspots tool, which lets you see the average rental yield of the postcodes in each city.

3. Choose the property type of your buy to let investment

Once you have a better idea of the buy to let process and the area you hope to invest in, you should start to think about your buy to let property type. You should never just go into buy to let without first considering the different property types available. When you compare the type of investment, from student to residential and from off-plan to refurbishments, you’ll understand more about the market and the different potential that comes from these various opportunities.

Consider student buy to let property

Student buy to let property investment is one of the most popular UK ventures. Many investors are attracted to buy to let student property due to low prices, high demand, and impressive yields. The UK is home to some major universities which have helped to grow the student population dramatically. The student population in the UK reportedly stood at 2.3 million in 2017 and 2018, including a large proportion of overseas students.

Student Population Buy To Let
Student Population Buy To Let

The buy to let student market has changed over recent years and luxury student accommodation has grown into a more common and attractive investment. Students now want more from their accommodation while property searching. Instead of living in cramped shared housing, students today crave spacious studio apartments. Rather than relying on their library WiFi to complete projects, students now favour a high-speed internet connection in their rental properties.

Because there’s a demand for this type of property, investors can take advantage of this by buying a buy to let student property with higher average rental costs to allow for more attractive yields. Other features that will attract students to your buy to let accommodation include proximity to university campuses, on-site security and maintenance, and modern designs and furnishings.

Think about buying a residential apartment

You might not want to rent your buy to let property to students, and want to find information on how to buy to let your property to alternative tenants. In this case, you should consider residential investments. Residential apartments are perhaps the most popular type of buy to let investment in the UK. This makes a lot of sense when you consider the fact that young professionals make up a large proportion of tenants. Think about it – if you’re a young professional looking for a rental property, it’s likely that you’d rather rent a city centre apartment instead of a suburban house.

 Many young renters are saving for a home of their own or want a chance to experience city life without committing to homeownership, which is why the demand for residential apartments is so high.

Residential Buy To Let Investment

When you compare buy to let student property with residential property, the main difference tends to be the price. Residential apartments are usually more costly than student investments, but can still be highly affordable depending on the area. In Liverpool, a buy to let property with RW Invest could cost you from as little as £94,950, complete with rental yields of 7 per cent.

If you do decide to choose a residential apartment for your buy to let venture, remember to factor in the area. Focus on finding properties in up and coming areas, with a lot of potential for growth. Not only will this help you find tenants fast, but it could also improve your chances of long-term capital appreciation. A good example of an area like this is the Baltic Triangle in Liverpool. The Baltic Triangle has become a major buy to let hotspot, labelled one of the UK’s trendiest neighbourhoods and set to see millions of pounds worth of regeneration.

Decide between a refurbishment or off-plan buy to let

Along with choosing whether you want to purchase a student or residential property, you should also ask yourself – should I invest in buy to let in the form of an off-plan or refurbishment property? These are the main two types of buy to let property available, and each comes with their own pros and cons. So what do each of these terms mean?

Buy to Let Investment Types
Buy to Let Investment Types

What is an off-plan property?

An off-plan property is a property which hasn’t been completed yet, meaning it is purchased while ‘off the plan’. The investor will buy an off-plan buy to let property without seeing the finished outcome. This could mean that the property is still in the planning stages, construction has only just begun, or it may be on the way to completion.

What is a new build property?

The definition of a new build is in the name – it’s a property which has been newly built within the last couple of years. New builds are sometimes defined in different ways, and some people class a new build as a property that’s been built in the last one or two years, while others consider a property a new build if you or your tenant is the first to live in it. It’s for this reason that off-plan properties and new builds are often grouped together.

What is a refurbishment property?

A refurbishment property is a property which has been refurbished and updated. With buy to let, this usually means period properties which have been renovated and turned into modern apartments.

off-plan investment guide

There are benefits and disadvantages to each of these property types. For buy to let, investors often opt for off-plan or new build properties. This is because a lot of tenants tend to favour living in a new build, due to the fact that these type of properties don’t need any maintenance and have a more modern feel. However, there are also those who prefer the architectural charm of a refurbishment property in an old building, so you should consider what each different tenant might want.

At RW Invest, the majority of our developments are off-plan. We prefer offering our clients off-plan properties due to the benefits they bring. Because the property isn’t completed yet, off-plan properties are able to be offered at below-market rates. There’s also a higher likelihood of capital appreciation with off-plan properties if the property was to increase in value by the time it’s complete and ready for tenancy.

The one downside to investing in off-plan buy to let, however, is the fact that the investor doesn’t get to take a tour of the finished property before they buy it. This often leads a lot of investors to question ‘is buy to let a good idea if I can’t see the property beforehand?’.

To get around this issue, we offer our clients solutions such as using computer-generated imagery and virtual reality to reveal the expected outcome of the development, along with taking clients on tours of the property site. We also provide the option to view development updates and allow investors to stay up to date with the properties construction. This way, they can get a better idea of what they’re purchasing before buying a buy to let investment property.

Top Buy To Let Tip: Know your tenant

Before you make the final decision on which property type you’re going to target for your investment, one of the biggest buy to let tips is to get to know your tenant a little better. When you get into the mindset of your potential tenant, you’ll gain a better insight into the features and qualities that they favour in a rental property. A lot of the time, taking time to do this before you find tenants can be the key in how to buy to let successfully.

For instance, imagine your ideal tenant is a young professional couple in Manchester. Think about their main requirements for their rental, which could include proximity to both their workplaces, good transport links, a modern and stylish design, and amenities such as an onsite gym, which make life easier for those with a busy lifestyle. Identifying these things will help you make a more informed and well-rounded buy to let investment.

Top Tips for Buy To Let Investment
Top Tips for Buy to Let Investment

4. Get buy to let mortgage advice

Many people who invest in the UK buy to let market opt to use a buy to let mortgage to help them pay for the property. While some circumstances don’t allow you to use a buy to let mortgage, many investors find a buy to rent mortgage necessary in order to meet property payments. Whether you plan on using one or not, these types of mortgages make up a big part of many people’s investment journey. Find out more with this buy to let mortgage guide.

What is a buy to let mortgage?

A buy to let mortgage is a loan agreement that’s specifically tailored to those purchasing a rental property. A buy to let mortgage in the UK works in a similar way to a regular residential mortgage. The main difference, apart from the property type, is that buy to let mortgage rates and interest fees tend to be higher.

How much deposit for a buy to let mortgage?

Your buy to let mortgage deposit will usually be a minimum of 25 per cent of the property value, but this can vary between 20 to 40 per cent depending on the individual mortgage. For example, if your property value was £120,000, you’d need to pay a deposit of at least £30,000 as the cheapest buy to let mortgage deposit.

Buy To Let Mortgages
Buy To Let Mortgages

What are the buy to let mortgage rules?

There are usually certain buy to let mortgage rules and criteria that you need to meet. For instance, to get a buy to let mortgage, you need to already own your own home, have a good credit record, and earn over £25,000 a year.

Certain lenders will have different rules, but these are normally the main criteria that are required before a mortgage provider approves you for a buy to let mortgage. This means that if you’re a first-time buyer, a buy to let mortgage isn’t an option, so you’ll need to explore alternative ways to purchase the property.

Some lenders also have age limits for their mortgages, with a typical age limit of between 70 or 75, meaning that your mortgage payments must end by the time you reach this age.

Certain property types, such as off-plan properties, are difficult to purchase with a buy-to-let mortgage. Those who want to obtain a mortgage for a rental property will struggle to do so with off-plan investments. Because mortgage lenders will typically only guarantee the amount they’re going to lend for up to six months, they’re unlikely to agree to fund an off-plan investment in case the development doesn’t complete within this time.

Buy To Let Investment Contact
Buy To Let Investment Contact

What if I don’t use a buy to let mortgage?

If you don’t want to use a buy-to-let mortgage, you can always pay off your property investment fees in full. If you have the money to do so, this may be the easier option, as you won’t have to worry about keeping up with mortgage repayments and possible rising mortgage rates further down the line.

Top Buy To Let Tip: Speak to a buy to let mortgage advisor

Deciding whether or not you should use a mortgage for your buy to let property is an important part of your investment journey. While we’ve tried to provide you with as much information as possible on the basics of buy to let mortgages, you should also seek out the help of a mortgage advisor. This way, you can get first-hand top tips and buy to let mortgage advice on things like mortgage repayments, types of mortgage and finding a mortgage provider, and get immediate answers to any questions you have.

Disclaimer

Please note, although we are a property investment company, we do not specialise in buy to let mortgages, nor do we allow these to be used when buying our investment properties. The information we’ve referenced in this section of our buy to let guide was taken from multiple sources, such as Money Advice Service. If you want to know more about buy to let mortgages, please seek the help and advice of an expert, who can guide you through your available options and help you find the best mortgage provider for your needs.

5. Learn about buy to let rules and tax for buy to let property

When you purchase a buy to let property, there are certain rules you need to follow and taxes that need to be paid. Tax rates on buy to let property can differ depending on the type of tax involved. The tax implications of buy to let property can sometimes turn people away from the idea of buy to let, which is why it’s so important to educate yourself on the potential fees involved before making any big decisions. From stamp duty to legal obligations, here are some important things you should know.

Legal requirements for buy to let investors

Buy to let comes with certain legal requirements that investors need to follow regarding tenancies. Whenever you find a resident for your buy to let property, you need to create a written tenancy agreement which must be signed before the process moves forward. This is essential as it ensures you have full control of both yours and your tenant’s rights, avoiding any issues from arising.

One common agreement is that tenants will pay a deposit before they move into the property which they’ll get back at the end of the tenancy. When this happens, the deposit must be stored in a protected Tenancy Deposit Scheme.

Buy To Let Tenant Deposit Scheme

Capital gains tax on buy to let property

One of the biggest taxes that buy to let investors need to pay is capital gains tax. Capital gains tax is a tax on any profit you make from the sale of an asset. This applies to buy to let, so when selling a buy to let property, capital gains tax should be expected. In fact, the capital gains tax when selling buy to let properties is actually higher for landlords, with tax rates on buy to let property of 18 per cent for basic-rate taxpayers and 28 per cent for additional rate taxpayers. The amount you’ll pay for capital gains tax on a buy to let property sale will differ depending on the price of the property.

Stamp duty tax rules on buy to let property

Since April 2016, it became a law that those purchasing a second home must pay a stamp duty tax on properties worth over £40,000. Therefore, this will apply to you if you currently own your own home and are buying an additional property for buy to let purposes. You can use a stamp duty tax cost calculator to work out how much this could cost you for your buy to let investment. As a rule of thumb, you’ll pay 3 per cent tax fees on properties up to a value of £125,000, 5 per cent on properties up to £250,000, and 8 per cent on values of up to £925,000.

UK Buy To Let Stamp Duty Rates

What about buy to let tax relief?

You may be wondering whether you can claim any tax relief on buy to let property investments. Paying tax on buy to let property isn’t everyone’s favourite part of the investment process, and fortunately, it is possible to deduct some costs from your overall outgoings.

In the past, certain rules were in place which allowed investors to take advantage of significant buy to let tax relief. In more recent years, however, things have changed and a new buy to let tax system has been introduced. Let’s take a look at the possible tax relief options you should explore as a buy to let investor.

Can I get tax relief on buy to let mortgages?

Those who use a buy to let mortgage to pay for their rental property are able to benefit from some tax relief. While this isn’t as substantial an amount as it was in the past, it’s still definitely worth exploring if you’re looking into beginning your buy to let journey.

Before April 2017, private landlords that had a buy to let mortgage could deduct any interest they paid towards their mortgage payments from their full rental income amount. For instance, investors who had an annual mortgage interest payment of £9,000 and made returns of £10,000 per year through rental income would only need to pay tax on the remaining £1,000. Therefore, those in a tax bracket of 20 per cent would only need to pay a tax bill of £200.

However, since the 2017-18 tax year began, new buy to let property tax changes have been introduced on a gradual basis until plans are finalised. Following this period, the percentage of mortgage interest payments deductible from rental income has been decreasing, down 100 per cent to 25 per cent in the 2019-20 tax year. By 2020, this percentage will reach zero.

Once this happens, buy to let investors will be unable to deduct any amount of their mortgage interest payment from their rental income before paying tax. A landlord that earns £10,000 a year in rental income and pays £9,000 in mortgage interest payments will instead have to pay tax on the entire £10,000.

If you’re concerned about these tax relief changes, a buy to let mortgage might not be right for you. If you have the means to do so, it might be worth looking into purchasing your buy to let property outright.

Buy To Let Property
Buy To Let Property

How to avoid capital gains tax on buy to let property

From April 2020, new ‘Private Residence Relief’ plans will come into place, which provide certain investors with some relief on their capital gains tax. Buy to let landlords who lived in their property before putting it on the rental market can avoid paying any capital gains tax for both the time they lived in the property and for the following nine months after moving out.

Top Tip: Work out your potential buy to let costs

Now that you know about the taxes you’re likely to pay on your buy to let property, you should take some time to work out what your potential costs may be and compare this to the amount of return you expect to see from the investment. This could help you discover the best route to take on your investment journey, and decide whether or not buy to let is right for you

Disclaimer

The information we’ve used in this section of our buy to let guide was taken from the following sources – Simply Business and Money Supermarket. If you want to find out more about the possible tax on the sale of buy to let property or your tax on buy to let property income, consider speaking to a financial advisor who can provide you with more in-depth guidance. For detailed and thorough legal advice, reach out to a third party solicitor who specialises in property law.

Your next steps

Now that we’ve covered the main elements of buy to let and offered top property tips on how to succeed as a first time buy to let investor, why not get in touch and discuss your options with one of our property professionals?

No question is off-limits when it comes to purchasing your first buy to let property, whether you’re concerned about risks and returns or you want to be sure you know the best buy to let areas for growth and demand. Whatever your query, our dedicated team are happy to offer further top tips and advice to make your investment journey run as smoothly, safely and securely as possible.

Be sure to also keep up to date with our buy to let news update section for regular articles and blog posts on market updates, buy to let tips, and more.

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