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The Complete Guide to Buy to Let Costs

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    What is Buy to Let?

    In layman’s terms, a buy-to-let property is one that has been purchased by an investor in order to be let out to tenants.

    Buy to let investors buy a property and make money from the rent paid by their tenant. When buying a property to let, you can either purchase it outright or with a buy-to-let mortgage.

    If you’re interested in property investment and learning about the costs involved in buy-to-let, then this guide is the one for you!

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      Buy-to-Let Costs

      The Costs of Buy to Let

      Like most investments, there are some substantial costs to buying a buy-to-let property from the outset.

      So, for those of you looking to update your buy-to-let costs spreadsheet – here are the most important things to remember when buying a buy-to-let property.

      The Initial Costs – Buy-to-Let Mortgage

      The process of purchasing buy-to-let can essentially be broken into these three steps:

      • An investor purchases the property of their choice from an estate agent or property investment company.
      • They find a tenant who will agree to pay the regular monthly rental instalments.
      • Then, they can see a return on investment through monthly rental payments.

      Sounds easy, right?

      Well, of course, this is just a simplistic overview of the process – in order to be truly successful in this venture, you’ll need to know the ins and outs of the process on an in-depth level.

      This means you’ll need to familiarise yourself with things like buy-to-let mortgages, buy-to-let conveyancing costs, as well as all the taxes included with the purchase.

      A buy-to-let mortgage is a popular option for those looking to invest in buy to let property.

      If you don’t have the cash in hand to pay the full property price outright, then this is a great alternative.

      With the help of a buy-to-let mortgage, investors can put down a lump sum deposit and pay monthly mortgage repayments.

      These kinds of mortgages work in a similar way to regular residential mortgages – with the main difference being that the deposit needed is usually a little bit higher.

      How Much is the Deposit for Buy to Let?

      Usually, buy-to-let mortgage costs are at least 25% of the property value. However, some lenders will ask for a deposit of up to 40%.

      Basically, the more you can offer, the better.

      When deciding on a buy-to-let mortgage, it’s essential that you work out whether your expected rental returns will be able to match the amount needed for repayments while also still leaving you with some income each month.

      To help you determine how much rental income you’ll need to satisfy buy-to-let mortgage costs, feel free to use our buy-to-let costs calculator.

      Can I Secure a Buy-to-Let Mortgage Without Already Owning a Home?

      This all depends on what mortgage lender you use.

      Some lenders will be more than willing to accept first-time buyers for a buy-to-let mortgage without any issue.

      However, it’s likely that the majority will view this as a high-risk scenario.

      To offset this, you may want to first purchase a home of your own using a residential property mortgage before looking to secure a buy-to-let mortgage as an investor.

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      Taxes and Interest Rates Explained for Buy to Let Mortgages

      What Taxes are Involved?

      A significant part of the costs involved with buy-to-let property investment is taxes. 

      The main taxes included are:

      For an in-depth look into the tax costs of buy-to-let, take a look at our guide to buy-to-let taxes.

      Stamp Duty Tax

      If you want to purchase a buy-to-let property, then you’ll need to pay stamp duty tax.

      Those buying a second property will pay an additional 3% surcharge on stamp duty purchases, regardless of the property value.

      This will apply to you if you currently own your own home (i.e. you’re not a first-time buyer) and are buying an additional property for buy-to-let purposes.

      You also need to pay stamp duty whether you own a freehold or leasehold property.

      Use our stamp duty tax cost calculator to determine how much this could cost you for your buy-to-let investment.

      Income Tax

      This is essentially tax paid on rental returns.

      Investors will need to declare any rent they receive in their Self Assessment Tax Return.

      The amount you pay depends entirely on your personal circumstances and the amount you earn.

      Rental income is taxed at the same rate as any income you receive from your day-to-day job or any other business.

      Capital Gains Tax

      This is a tax on any profit you make from the sale of an asset. 

      This applies to buy-to-let, so capital gains tax should be expected when selling a buy-to-let property.

      In fact, the capital gains tax when selling buy-to-let properties is actually higher for landlords, with tax rates on buy-to-let being 18% for basic-rate taxpayers and 28% for additional-rate taxpayers.

      Buy-to-Let Investment Guide

      Want to become a successful buy-to-let investor? Get our free investment guide today for all the latest tips!

      Download Guide Guide - Buy to let investment guide

      Off-Plan vs Completed Property

      The ultimate guide to help you choose whether to invest in off plan or completed property in 2024.

      Download Guide
      Crosby Gardens


      Once you’ve purchased your property, the expenses don’t stop there – there’s still a load of landlord costs that buy-to-let has in store for you.

      Chiefly, you’ll need to ensure that the property is fully repaired, cleaned, and stocked with any appliances or furnishing needed to appeal to your ideal client.

      The amount it will cost to refurbish a property depends on its state before tenancy, as well as the level of work you plan to do on the property every few years.

      If purchased as a complete property development project, then you will undoubtedly need to spend a hefty amount of money on redevelopment.

      However, most properties won’t need much money to ensure that they’re up to scratch.

      Typically, around £1,000 to £2,000 is more than enough to cover any possible refurbishment costs over five years. However, like most things in this guide, you should base this on your personal circumstances.

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        Make sure you're ready

        Letting Agents & Property Management Fees

        This is an extra cost that applies only to those utilising a lettings agency to help run their property.

        Whether you’re looking for assistance in finding tenants and collecting rent or for someone to completely manage the property for you, this is something you should spend some time considering and whether you want to incorporate it into your budget. There are many benefits to using a lettings agency for your buy-to-let investment.

        The amount you spend on letting agent and property management fees is wholly dependent on the charge incurred by the particular agency you choose.

        To enquire about property management services for our own buy-to-let opportunities, please contact us for more details.

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          Buy to Let Criteria

          What Costs Can You Deduct From Buy to Let?

          Now, you’re all set up and seeing returns on your investment when suddenly – bang – it’s the end of the tax year.

          You’re probably wanting to offset the tax on your profit with the buy to let allowable expenses you have incurred while renting the property, yes?

          Well, good news!

          All you need to do is make sure that those expenses were wholly and exclusively made with the intent of renting out your property.

          If an expense wasn’t incurred for the purpose of your property rental, then you can’t offset the cost against the rental income.

          Some of these expenses, for example, include:

          • General maintenance and repairs, but not improvements (such as fitting in some fancy new marble floorboards)
          • Letting agent fees and management fees
          • Water/gas/electricity rates, council tax
          • Insurance
          • Costs of services (such as gardeners and cleaners)

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          The Gateway Buy to Let Investment

          Is Buy to Let Property Investment Right For You?

          And there you have it – these are some of the most notable buy-to-let costs.

          Now, this is just the tip of the iceberg when it comes to property investment.

          If you take anything away from this article, remember this:

          Research is key.

          Keep up to date with the latest trends, be smart with your money, and thoroughly investigate the ins and outs of property.

          Buy-to-Let Investment Guide

          Want to become a successful buy-to-let investor? Get our free investment guide today for all the latest tips!

          Download Guide Guide - Buy to let investment guide

          Off-Plan vs Completed Property

          The ultimate guide to help you choose whether to invest in off plan or completed property in 2024.

          Download Guide

          Why Invest with RWInvest?

          If you’re considering buy-to-let property, then you can’t go wrong with RWinvest.

          Why invest in property with us?

          • We’re an award-winning property investment company with over 20 years of industry experience.
          • We feature some of the latest and greatest developments across the UK’s top locations – from prices as low as £34k.
          • We also have experience working with investors from around the globe, supplying them with all the information they need at every stage of the investment journey.

          And as of 2024, we now have over 1,000 five-star reviews.

          If you still have doubts – or would like to consider your options a bit more- we also feature in-depth looks into the latest up-and-coming investment areas.

          These guides explain why you should consider investing in property and cover everything from serviced accommodation and rental yields to buying UK property from the USA and how to find a tenanted property for sale in the UK.

          If you’ve heard enough, though, feel free to take a look at some of our latest properties to see if any are the right fit for you.

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          Dale Barham

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          Dale is a property news and onsite content writer at RWinvest.