5 Steps to Become a Buy-to-Let Landlord

Before even thinking about signing on the dotted line, any would-be buy-to-let landlord must consider all the costs involved with purchasing a property.

Having a clearly defined budget at hand, first and foremost, will significantly help to offset any surprises further down the line.  Why not learn more about how buy-to-let property investments work with our free guide?

Price

As you would expect, the purchase price of a buy-to-let property is likely one of the most considerable costs of becoming a buy-to-let landlord.

Many factors determine the individual price of a property, but the most pivotal is the type of property and area you choose to invest in. This means that the bulk of your attention should be focussing on the best UK areas to invest in, as well as the latest buyer trends, in order to maximise your yield.

According to the latest data from the Land Registry, average property prices in the UK are exceeding £280,000 – with the average 12-month London prices skyrocketing to over £730,000!

It’s clear then that property can sometimes come with a hefty price tag; however, depending on where you look, investors can find affordable prices in areas that produce the best yields – some on par or even higher than the capital city!

For example, properties in Liverpool and Manchester currently have average prices of around £193,473 and £250,700, respectively. Much lower than London house prices, investors can also see some impressive returns, with gross rental yields of 5.92% and 6.29%. Why not look at some of the new build developments in Liverpool for some great examples?

Whilst gross rental yields in London (around 7%) are higher than in these cities, the lack of affordability on offer makes property investment in the capital much more difficult for investors – especially for those looking at how to become a buy-to-let landlord as a beginner.

Capital appreciation for residential properties in the area is another issue, with 5-year estimates depicting negative growth of -1.2% by 2027.

Comparatively, the North West is set to see increases as high as 11.7% in the next five years – the highest rate of growth in the country.

Maintenance Costs

Once your buy-to-let property is populated with tenants, and you’re (hopefully) beginning to see some impressive rental returns – the costs do not end there; there will be some day-to-day costs that you will need to consider especially maintenance and repairs fees.

Many buy-to-let landlords will also seek out landlord insurance alongside taking out a mortgage. This covers property and liability protection and offers great insurance to protect investors from incurring significant financial losses.

In addition to this, a rental guarantee provides an extra layer of protection for buy-to-let landlords in case any tenants fail to pay their rent on time.

Crucially, it is the responsibility of buy-to-let landlords to ensure that properties are safe for tenants to live in.

Whether it’s fire alarms or carbon monoxide detectors, it’s vital that investors take the time to review the safety of their property on a regular basis.

Another factor to consider in 2024 is EPC ratings.

An Energy Performance Certificate (EPC) essentially ranks a property’s energy and CO2 emissions, with ratings ranging from A (most efficient) to G (least efficient).

Now, all properties must have a rating of E or above. However, following discussions in 2020, the government proposed that all rental properties in the UK will need an EPC rating of C or above by 2028 to be legally rented to tenants.

This would require all properties – whether new-builds or not – to meet higher energy efficiency standards to be legally rented on the market.

This means landlords that own properties with sub-standard ratings could spend substantial maintenance fees to ensure that their asset is up to scratch.

Investors should consider investing in new-build or off-plan properties rather than purchasing an older property requiring more renovation work.

These developments are usually outfitted with the latest eco-efficient technology – such as solar panels or heat pumps – meaning that they are likely to automatically have a higher EPC rating. Whether you are thinking of investing in a buy-to-let in Slough or looking at the different types of flats for sale in Liverpool, always look at the factors to consider first.

If you want to learn how to become a buy-to-let landlord, you must also wrap your head around what kind of taxes come with property investment.

The main taxes included are:

• Rental Income Tax
• Capital Gains Tax
• Stamp Duty Tax

Rental Income Tax

One of the simplistic taxes to understand, Rental Income Tax is essentially tax paid on rental returns.

Buy-to-let landlords purchasing a property will need to declare any rental income received in a Self-Assessment Tax Return.

The amount paid will depend on an investor’s personal finances, as well as the amount you earn.

Rental income is taxed at the same level as the usual income you would receive from a day-to-day job or any other typical business venture.

Capital Gains Tax

Particularly useful when looking at an exit strategy, Capital Gains Tax is a tax on any profit made from the sale of a property.

Buy-to-let landlords should expect higher capital gains tax bills when selling their properties.

From April 2023, the capital gains tax allowance was halved from £12,300 to £6,000, with this process expected to be duplicated from April 2024, and the allowance halved again from £6,000 to £3,000.

This means that when buy-to-let landlords eventually sell their properties, their tax bills will be much higher.

According to the latest research, the average landlord will pay £1,770 more in Capital Gains Tax compared to 2022.

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

Stamp Duty Tax

If you want to purchase a residential buy-to-let property in 2024, you will have to pay Stamp Duty Land Tax (SDLT) – only if your purchase is over the threshold of £250,000 (unless you qualify for first-time buyer’s relief).

Buying a second property will see investors pay an additional 3% surcharge on the SDLT, regardless of overall property value.

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

For those investing in buy-to-let as first-time buyers, you will only pay SDLT for properties worth £425,000 or over.

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

Feel free to use our stamp duty tax cost guide for a detailed rundown of the latest SDLT rates.

Those that choose to take on the full responsibilities of being a full-time buy-to-let landlord can very feasibility live off the monthly rental yield as their primary source of income.

This does not mean that every investor has to abandon their current career path to own and manage their own residential property; it is entirely possible to profit from a buy-to-let investment without it having to take up all your time.

Once you have figured out what kind of investor you want to be, you can decide whether or not to consult the services of a property management company.

Companies like these can manage the bulk of the typical duties of managing a property, meaning that the weight of responsibilities is not solely on the shoulders of buy-to-let landlords.

This can often alleviate a tremendous amount of stress and is likely the best route for those unable to fully take on the time-consuming duties that come with owning a buy-to-let rental property.  Leading developers such as Legacie Developments are leading the way in creating more opportunities for buy to let investors in Liverpool.