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25 Things You Should Know Before Buying Rental Property

Knowing how to purchase rental property can be difficult, especially as a beginner. If you want to know how to buy your first rental property, you’ve come to the right place. Keep reading to learn the 25 key things you need to know before buying a house and renting it out.

Buying a Rental Property

So, you’re thinking of buying rental property? 

Buying a rental property has quickly become the most popular investment property strategin the UK.  

It can be a fantastic way to increase income through consistent returns, however, it can get complicated. 

You may be hesitant to start your investment journey as you simply have no clue where to start. 

There’s so much terminology and jargon out there, and other factors to consider, that it can become incredibly confusing. 

Don’t worry, though, you’re not alone. Many first-time investors feel the exact same way as you. 

But how do you get over this learning curve? How do you prepare yourself for a property venture? 

The answer? Research! 

Tips for property investment Tips for property investment

Understanding the absolute basics of property investment is vital. While you can stumble blindly and make a successful investment, you could be limiting your potential and might not get the most out of owning a rental property. 

Thankfully, this guide is here for you. 

Before buying an income property and getting started with buy to let investment, it’s a good idea to do your research, and this helpful guide contains information on 25 things you should know before buying investment property. 

If you’re interested in owning rental property and want to know how to buy rental property, maximise your returns, the costs involved, the risks and benefits of owning a rental property, and much more, then our tips will help you get started.  

Continue reading to find out how to buy rental property in the UK. 

ELEMENT The Quarter Exterior ELEMENT The Quarter Exterior

What is a Rental Property?

So, what is a rental property? 

Before we figure out how to buy rental property, and explore our 25 things to know before you invest in rental property, it’s important to set some groundwork. What is a rental property? 

If you’re completely new to the property world, you may not know exactly what we are referring to. 

Rental property is a property purchased with the express purpose of renting it to another person, usually referred to as a tenant. 

There’s several different types of rental property and investment property, some of which we will talk about later in this guide. 

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1) Identify Your Personal Goals

Identify your personal property investment goals Identify your personal property investment goals

Before we jump into the nittygritty stuff, it’s important to think basic. What exactly do you want out of your investment? 

Maybe you’re thinking ahead to retirement or just want some more money on the side. Whatever your reasons, buying rental property is an excellent choice. 

However, your goals can impact what sort of property you should buy and what area to invest in. 

For instance, if you’re looking at retirement, you may want a property with high growth potential so you can sell it on for a big payday for retirement. 

Alternatively, if you’re just looking at monthly income, you may want an area with high rental income and may not be too interested about your return on investment. 

While we will explore these options later on in this guideit’s important to keep your goals in mind when evaluating each aspect of a successful rental property investment. 

2) Get to Grips With the Terminology

There’s a lot of jargon and terminology in the property world, and we’re going to be using a bunch of it in this guide to “how to buy rental property.” 

With this in mind, we will help you to get to grips with some commonly used key phrases and concepts. 

Take a look at some of the following definitions to help you understand the basics of rental property investment. 

This is not an exhaustive list but gives a good baseline of some important concepts you will likely encounter upon buying rental property. 

The rate of interest the Bank of England charges. Often the Bank of England’s base rate is used as a benchmark for other interest rates and will be used by mortgage lenders.

A short-term loan designed to allow a person to buy a property before selling their current one.

Sometimes known as buy-to-rent, buy to let is the purchase of a property with the intention of letting to a tenant. It is another term for rental property.

Also known as equity, capital represents the amount of money you have invested into an asset like a property.

This is the increase in a property’s value over an amount of time. It can both depreciate and rise in value.

A legal representative such as a solicitor that deals with the legal aspects of purchasing or selling a property.

The legal process that refers to the transference of ownership of a property.

Sometimes just referred to as “exchange”, the exchange of contracts is when the buyer and seller both sign a contract for the sale. The exchange is actioned by the conveyancer. From the point of exchange, the sale is considered binding, and terms can no longer be changed.

A form of property ownership where you own both the property and its land. This is different to leasehold where you own the property for a set period of time which has been agreed with the freeholder.

An annual charge paid by the leaseholder of a property to the freeholder.

Base rate

The rate of interest the Bank of England charges. Often the Bank of England’s base rate is used as a benchmark for other interest rates and will be used by mortgage lenders.

Bridging Loan

A short-term loan designed to allow a person to buy a property before selling their current one.

Buy to Let

Sometimes known as buy-to-rent, buy to let is the purchase of a property with the intention of letting to a tenant. It is another term for rental property.

Capital

Also known as equity, capital represents the amount of money you have invested into an asset like a property.

Capital appreciation/growth

This is the increase in a property’s value over an amount of time. It can both depreciate and rise in value.

Conveyancer

A legal representative such as a solicitor that deals with the legal aspects of purchasing or selling a property.

Conveyancing

The legal process that refers to the transference of ownership of a property.

Exchange of contracts

Sometimes just referred to as “exchange”, the exchange of contracts is when the buyer and seller both sign a contract for the sale. The exchange is actioned by the conveyancer. From the point of exchange, the sale is considered binding, and terms can no longer be changed.

Freehold

A form of property ownership where you own both the property and its land. This is different to leasehold where you own the property for a set period of time which has been agreed with the freeholder.

Ground rent

An annual charge paid by the leaseholder of a property to the freeholder.

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Get to Grips With the Terminology Continued

A government office in charge of record holding of land ownership and charges against property such as mortgages.

A fee paid to the Land Registry upon the sale of a property.

A legal document that allows one party i.e a tenant to rent a property owned by another party for a set period of time.

A charge, typically on leasehold properties like flats, which covers the costs of insurance and maintenance of a building.

The return on a property investment you earn through rent. It is calculated by dividing your yearly income by the original purchase price and multiplying by 100 for a percentage.

The money owed when rent hasn’t been paid.

A tax paid to the government by those purchasing a property in England and Northern Ireland. It has different names in Scotland and Wales, and different rates, but the concept is the same.

A report from a qualified surveyor that checks the structure of a property and identifies any faults.

The agreed-upon possession of a property by a tenant under the terms of a lease.

A contract between a tenant and landlord that allows the tenant to live in the property as long as they follow the rules and pay rent.

The time a property isn’t generating rental income when it is vacant.

Land Registry

A government office in charge of record holding of land ownership and charges against property such as mortgages.

Land Registry Fee

A fee paid to the Land Registry upon the sale of a property.

Lease

A legal document that allows one party i.e a tenant to rent a property owned by another party for a set period of time.

Maintenance Charge

A charge, typically on leasehold properties like flats, which covers the costs of insurance and maintenance of a building.

Rental Yield

The return on a property investment you earn through rent. It is calculated by dividing your yearly income by the original purchase price and multiplying by 100 for a percentage.

Rent Arrears

The money owed when rent hasn’t been paid.

Stamp Duty Land Tax

A tax paid to the government by those purchasing a property in England and Northern Ireland. It has different names in Scotland and Wales, and different rates, but the concept is the same.

Survey

A report from a qualified surveyor that checks the structure of a property and identifies any faults.

Tenancy

The agreed-upon possession of a property by a tenant under the terms of a lease.

Tenancy agreement

A contract between a tenant and landlord that allows the tenant to live in the property as long as they follow the rules and pay rent.

Void Periods

The time a property isn’t generating rental income when it is vacant.

3) Is Rental Property a Good Investment?

Element - The Quarter - living room interior Element - The Quarter - living room interior

This may seem like quite a silly question given the fact you’re currently reading a detailed guide on investing in rental properties 

However, you would be remiss for not asking yourself this question “is rental property a good investment?” 

A lot has changed over the years, particularly in the last 12 months with the huge economic impact of covid-19 and the ensuing lockdowns worldwide. 

While writing this, the UK is quickly returning to normality. However, it’s still important to ask yourself if you’re making the right investment and are rental properties a good investment. 

There are many investment options out there, with stocks and shares and eCommerce becoming increasingly popular amongst young investors. With this in mind, is buying to let right for you, and is rental property a good investment in 2021? 

The good news is that buy to let is performing exceptionally well and is far more reliable than the stock market.  

Rent prices are increasing nationally, with huge capital growth predictions for the coming years.  

Rental Property Investment Taxes Rental Property Investment Taxes

Taxes have changed somewhat in the past few years, though, so you may be earning less monthly income than you would before 2017. 

While we will discuss some of these concepts later on in the guide, the bottom line is that you can still make comfortable profits in the UK. However, you may need to be a bit pickier about where you choose to invest. 

Real estate can breed success if you do it right. While this is also true for the stock market, the reality is that it can be perilous to invest in stocks. 

Rental property investment has a historical track record of bouncing back from economic turmoil.  

Take 2020, for instance. House prices in the UK dropped between March and April by about £2,000 at the start of the first UK lockdown. 

Fast forward to the end of the year, though, and house prices reached a record high, growing at the highest rate since 2004 and surpassing £250,000 for the first time ever. 

On the flip side, the stock market crashed in February on the worst day since 1987, with the Dow dropping by 3,000 points and the FTSE 100 falling by 10.87%. 

The good news is that buy to let property investment is performing exceptionally well and is far more reliable than the stock market.

Daniel Williams, RWinvest

4) The Risks and Benefits of Property Investment

5) Understand What Property Investment Involves 

This is quite a broad topic, and we’ve discussed some aspects already, but understanding the fundamentals of property investment is vital. 

Unfortunately, finding out how to buy a rental property isn’t as simple as handing over a cheque. There are many steps in place and rules and regulations you need to keep in mind if you decide to buy a rental property. 

Firstly, let’s take a look at a step-by-step guide for buying a rental property and renting it to a tenant in the most basic terms. 

  • Step 1 – Identify a Property 
  • Step 2 – Make an offer 
  • Step 3 – Have offer accepted 
  • Step 4 – Arrange a mortgage if applicable
  • Step 5 – Hire a conveyancer 
  • Step 6 – Consider a survey 
  • Step 7 – Provide a deposit 
  • Step 8 – Exchange contracts 
  • Step 9 – Complete sale and get the keys 
  • Step 10 – Pay Stamp Duty and other legal fees 
  • Step 11 – Ensure the property is suitable for tenants 
  • Step 12 – Research area and set rent appropriate for neighbourhood 
  • Step 13 – Find a good letting agent if you want to use one. 
  • Step 14 – Get references so you know your tenant or guarantor can pay the rent
  • Step 15 – Organise the tenancy deposit (usually done by the lettings agent) that needs to be registered with the Deposit Protection Service 
  • Step 16 – Sign the tenancy agreement and move tenants in 

Now, these steps can change dramatically depending on a variety of factors. 

For instance, if you use the services of an investment company, choose a different type of property investment, or use a property management company, there may be different steps and things to consider. 

However, these 16 steps are a decent baseline for precisely what you can expect when setting out on your rental property journey.  

If you’re asking “how to buy a rental property?”, these 16 steps are likely what you will have to traverse on your purchasing journey. 

6) Are You Ready to Be a Landlord?

7) Use a Property Management Company

When buying a first rental property, there’s a common misconception that everyone involved with investing in rental properties is a landlord.  

In actuality, not everyone investing in rental properties is a buy to let landlord. Many investors choose to make a hands-off investment rather than take on a more hands-on landlord role. 

If you decide you’d rather be a hands-off investor instead of taking on landlord duties, you should look into hiring a property management company to manage the property on your behalf.  

Property management companies, also known as rental management companies, manage everything from finding tenants for your property to chasing up rental payments or dealing with any issues your tenants may experience. 

RWinvest Office in Manchester RWinvest Office in Manchester

For investors interested in buying an income property to make some extra money alongside their day-to-day career, using a property management company is a perfect solution.  

Typically, property management companies take around 10% of your monthly rental income as a fee. While this isn’t ideal, it does ensure a completely hands-off investment.  

This is vital if you have a full-time job or live away from your property. 

At RWinvest, we collaborate with several excellent property management companies who will be recommended to our investors, all of which have an excellent reputation and plenty of industry experience. 

In fact, some properties, particularly student properties, come with their own property management company, so you don’t even need the headache of trying to find one yourself. 

8) Do the Maths

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Other Fees

Aside from stamp duty, there’s plenty of fees you should consider when buying an investment property. 

We will talk about why you should get insurance later on, but if you do get insurance, you need to factor in the costs for this, too. 

You should also consider if you’re buying a leasehold property, as well as how much you might be paying in ground rent for the maintenance of the building’s grounds and communal areas. 

Overall, you can expect the following costs. 

– Solicitor Fees  typically between £850 to £1,500 including 20% VAT. 

– Survey Fees – snagging surveys, for instance, can cost between £300 to £600 

– Insurance – Landlord insurance costs £170 on average, according to Nimblefins. 

– Stamp Duty 

– Property Management costs – typically 10 to 15% of your rental income. 

Once you have a good idea of all of the costs and potential earnings that will come from owning a rental property, you can set yourself a budget for your venture.  

If you’re planning on using a buy to let mortgage, make sure you create a budget that factors in at least 25% of the property price for a deposit, along with extra cash for the other costs involved. 

It’s a good idea to keep some cash saved away for emergencies, such as repairs that could be needed on your property either before or during the tenancy. 

The amount of money you can borrow when buying a rental property with the help of a buy to let mortgage depends on the amount of rental income you expect to generate.  

As a rule of thumb, the rental income you earn should be 25 to 30% higher than your mortgage payment. 

Whether you should buy a rental property instead of paying off an existing mortgage depends on your personal circumstances.  

If you have a stable income through your regular work, business ventures, or other assets, and you’re able to continue paying off your mortgage, using any extra money you have to buy a rental property could be a good idea for you. 

However, if you’re at risk of losing your income streams, you may be more suited to paying off your existing mortgage before embarking on a buy to let investment, as this will give you greater peace of mind and security before buying property to rent out. 

You can own as many rental properties as you like, as long as you have the sufficient funds to purchase them.  

Investors with a larger budget will often purchase multiple lower-cost properties rather than one higher-priced investment.  

This way, you’re able to diversify your portfolio and spread your risk across different areas or property types while maximising your earning potential. 

A good example of how to buy rental property with a larger budget is purchasing rental properties in an affordable city like Liverpool.  

By investing in Liverpool with a larger budget, you could buy multiple properties for the price of just one in London, where buy to let investments can cost over £1 million in certain areas. 

How Much Can I Borrow to Buy a Rental Property?

The amount of money you can borrow when buying a rental property with the help of a buy to let mortgage depends on the amount of rental income you expect to generate.  

As a rule of thumb, the rental income you earn should be 25 to 30% higher than your mortgage payment. 

Should I Pay off My Mortgage or Buy Rental Property?

Whether you should buy a rental property instead of paying off an existing mortgage depends on your personal circumstances.  

If you have a stable income through your regular work, business ventures, or other assets, and you’re able to continue paying off your mortgage, using any extra money you have to buy a rental property could be a good idea for you. 

However, if you’re at risk of losing your income streams, you may be more suited to paying off your existing mortgage before embarking on a buy to let investment, as this will give you greater peace of mind and security before buying property to rent out. 

How Many Rental Properties Can I Buy?

You can own as many rental properties as you like, as long as you have the sufficient funds to purchase them.  

Investors with a larger budget will often purchase multiple lower-cost properties rather than one higher-priced investment.  

This way, you’re able to diversify your portfolio and spread your risk across different areas or property types while maximising your earning potential. 

A good example of how to buy rental property with a larger budget is purchasing rental properties in an affordable city like Liverpool.  

By investing in Liverpool with a larger budget, you could buy multiple properties for the price of just one in London, where buy to let investments can cost over £1 million in certain areas. 

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9) Market research: Find the Right Location

10) Consider Rental Yields 

Rental yields are paramount when it comes to an investment as they signify the return on your investment. 

Return on investment shows how long it will be before you start making a profit on your initial cash injection 

The higher the yield, the better the investment opportunity. 

Rental yield is displayed as a percentage and is calculated by dividing your yearly rental income by the original purchase price and multiplying by 100. 

Let’s use statistics for the average UK property as an example. 

According to the UK House Price Index, the current average UK property is valued at £250,341. 

Meanwhile, the average rent in the UK is £996, according to the Homelet Rental Index. 

Using these figures, the average rental yield in the UK is about 4.77%. 

That means every year, you will see a 4.77% return on your original investment. 

Typically, rental yields between 5 and 6% are considered ideal, meaning the average UK property falls short of a perfect investment. 

Not to fear, though, as depending on location you can see much higher yields. 

Rental Yields for Major UK Cities

Using a combination of UK House Price Index data from the Land Registry and Zoopla data, you can see that the highestyielding city is Newcastle with a 6.92%. 

Now, yields aren’t the be-all-end-all when buying a house to rent, but it is critical to consider alongside the other factors mentioned in prior sections. 

Like rent, these rental yields are also an average, and you can find them higher. 

Take our properties in RWinvest, for instance. You can find Liverpool properties with rental returns of up to 8%, while you can find Manchester properties with 7% returns. 

Invest From £50,000
Luton Prices from £179,950

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The Summit

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Liverpool Prices from £139,950

Assured 7% NET Rental Yields

15-20% Below Market Value

Invest From £35,000

ELEMENT - The Quarter

North West's First Eco-Development

Liverpool Prices from £74,950

8% NET Rental Return

300m Away From New £1bn Royal Hospital

11) Consider the Liveability of an Area

Consider Liveability Factors in the Area You Want to Invest in Consider Liveability Factors in the Area You Want to Invest in

When looking at houses to rent, it’s important to put yourself in your tenants’ shoes. Would they want to live here? 

Considering the liveability of an area is vital, and you need to understand precisely what the local neighbourhood offers. 

For young families, the quality and availability of local schools are paramount, so you should aim to buy a property with these local facilities if you are targeting this tenant group. 

Likewise, you need to consider factors like local crime rates, job opportunities, health care, transport, education like universities, and nearby amenities like restaurants and bars. 

These are all of critical importance to an individual’s life. 

A good rule of thumb is if you don’t want to live there, then the chances are your prospective tenants won’t either. 

To understand what cities offer, it’s good to read local reports to understand exactly what an area is like. 

Here at RWinvest, we have several key guides on various areas so you can learn what investing in the area entails. 

You can find guides to Liverpool property investmentManchester property investment, and more on our website. 

It’s also a good idea to look at local media reports. 

Recently, Liverpool and Manchester were voted in the top 10 global locations for business start-ups. 

Manchester has also been deemed the best place to live in the UK by the Global Liveability Survey, which ranks 140 cities on factors like education, culture, and health care. 

There’s plenty of information out there to help you decide which city is the dream location for rental property investment. 

12) Types of Property to Consider

To summarise so far, we’ve looked at your personal goals, what it means to be a landlord, how to evaluate an area and the type of costs you’re going to encounter when buying a house to rent. 

Now it’s time to actually look at properties to buy. 

Figuring out how to buy property can be hard, and finding a house to rent can be even harder. 

This is because so many buy to let investment strategies are out there, each having considerable differences and its own pros and cons. 

To help clear the fog, here are six top-rated buy to let investment strategies to consider on your investment journey. 

The bread and butter of the investment world, if you’re asking about investing in rental property for beginners, this is likely the most straightforward answer. 

Residential buy to let is when you purchase a residential property like a home or flat and rent it to a tenant of any age.  

This means you can rent to both young people and retirees, but not necessarily to students, which is typically classed as student buy to let.  

Younger people are certainly the more likely renter, but there’s a surprising number of retirees and over 60s choosing to rent. 

report from The Guardian found there are over 400,000 over60s currently living in private rented accommodation, an increase of 60% since 2007. 

In fact, research has predicted about a third of over 60s will be renting privately by 2040.  

So, what are the pros and cons of residential property? 

Residential buy to let shares a lot of the characteristics of buy to let in general. 

Pros 

  • Can earn regular monthly income through rent. 
  • Can earn a huge pay-out later down the line thanks to capital appreciation. 
  • Don’t need to be picky with tenants, with young people and retirees available. 
  • Easy to understand and get started with. 
  • Can have a completely hands-off investment with a property management company. 
  • Less risky with high demand for rental property and strong growth rates. 

Cons 

  • A long-term strategy so won’t see instant returns. 
  • Chances of void periods if the property is left vacant. 

Similar to residential property, student buy to let is the idea of purchasing a property and renting to students. 

The UK student market is thriving at the moment, with a record number of international students attending UK universities. 

And with predictions for 500,000 more students by 2030, the market is only going to get better. 

There are plenty of student cities to choose from, and you can invest in both purpose-built student accommodation and HMOs (which will be mentioned later).  

The key to student buy to let is understanding student populations and investing in cities with excellent universities, a strong job market, and top nightlife opportunities.  

A good indicator of this is researching the graduate retention rate of cities, with the likes of Liverpool, London, and Manchester, having some of the highest. 

Whatever city you choose, student buy to let can be a wise choice due to its affordability and high rental yields. 

As purpose-built student accommodation apartments are usually smaller and more compact, prices are traditionally far cheaper than normal apartments, giving an even bigger scope for a successful investment. 

You can buy some top student property with RWinvest, like ELEMENT – The Quarter phase 4, for just £99,950. 

Pros 

  • Low property prices and huge returns potential. 
  • Can earn regular monthly income from rent. 
  • Capital growth potential, though not as much as residential buy to let. 
  • Huge rental demand. 
  • Often sold with the services of a property management company so hands-off. 

Cons  

  • Limited to only one tenant group. 

When many start their investment journey and want to know how to buy property, many opt for HMOs. 

A house of multiple occupancy is a residential build that features more than one tenant. It is an increasingly popular investment type in cities like Liverpool. 

Often, these buildings are split into different rooms, with each room rented out within the property.  

HMO’s tend to feature student tenants, with these shared student houses typical for university students in their second, third, and final years of study. 

It’s important to note that there is a tonne of legislation surrounding HMOs, particularly surrounding safety, so it’s essential to get to grips with the law before investing. 

Similarly, there are talks of local councils banning or limiting the creation of HMOs, with many locals unhappy with the practice.  

This is worth keeping in mind if you do opt for this buy to let investment strategy. 

If you’re asking how to buy property, it isn’t recommended you opt for this method, particularly with difficulty involved with the legislation.  

Pros 

  • Can generate income from multiple tenants. 
  • Less chance of void periods as if one tenant can’t pay, other tenants can. 

Cons 

  • Complex tax rules and legislation so not ideal for beginners. 
  • If you need finance options like a buy to let mortgage, you may struggle to get one for HMOs. 
  • A wider trend of people wanting more luxury accommodation may make HMOs obsolete.  
  • Council initiatives prohibiting the creation of HMOs, so might not be a strong future. 

If you’re asking how to buy property, this method will likely not meet your expectations. 

A more obscure investment strategy, hotel buy to lets can be incredibly profitable but come with some high risks. 

The way it works is that an investor can purchase a room within a hotel build, with the investor taking a cut of the cash of any guests that stay in the room. 

This is far removed from more traditional buy to let strategies, as you don’t have a tenant. 

Instead, you will be relying on those travelling for holidays or business purposes. 

Hotel lets are also very hands-off, with no need to oversee tenant acquisition.  

There are some serious drawbacks, though. 

Pros  

  • Potential for large returns in busy hotels. 
  • Completely hands-off strategy with no tenant demands to deal with. 

Cons 

  • A hotel could go bust and make you lose your investment. 
  • The hotel may not be popular, so long void periods. 
  • Have no control over business decisions and cannot control reputation, so bad reviews may drastically impact the potential for earnings. 

If you want to know more about investing in rental property for beginners, holiday buy to lets are an excellent choice. 

Here, investors can purchase a property to rent on a short-term basis to holidaygoers. 

Typically, you can advertise these properties on websites like Airbnb, which is becoming a trendy platform for those letting out properties to tourists. 

You can get some excellent returns by letting out holiday homes, but you’re going to encounter one big problem: the seasons. 

The holiday business operates on a season-by-season basis, with you likely to get very little interest in your property in mid-winter compared to the summer, depending on location. 

It will also heavily depend on what area you invest in. You will ideally aim for popular tourist spots, but that may get expensive. 

If you already live in a popular tourist area, and your house is large, you could always rent a room in your property through Airbnb. 

While you may not get the most income from it, there are many tax advantages for going down this route. 

For instance, the government has a Rent a Room scheme, which means you can earn up to £7,500 tax-free if you let out furnished accommodation within your home. 

Overall, this is a decent answer if you’re looking for investing in rental property for beginners, but there are better options out there. 

By buying renting property such as traditional residential and student buy to let, there is more scope for high returns and stability.  

Pros 

  • Allow potential for decent rental income if the property is quality, and the area is popular. 
  • Tax advantages for renting out a room. 

 

Cons 

  • If you need to buy a property, securing a buy to let mortgage can be difficult. 
  • Will need to maintain the property and organise cleaning after every guest.
  • High chance of long void periods if the area sees seasonal tourist demand. 

 

Overall, there are plenty of investment strategies out there for you to consider when buying renting property 

If you want to find more about the latest property investment strategies, check out our detailed top 10 guide. 

Residential Property Investment

The bread and butter of the investment world, if you’re asking about investing in rental property for beginners, this is likely the most straightforward answer. 

Residential buy to let is when you purchase a residential property like a home or flat and rent it to a tenant of any age.  

This means you can rent to both young people and retirees, but not necessarily to students, which is typically classed as student buy to let.  

Younger people are certainly the more likely renter, but there’s a surprising number of retirees and over 60s choosing to rent. 

report from The Guardian found there are over 400,000 over60s currently living in private rented accommodation, an increase of 60% since 2007. 

In fact, research has predicted about a third of over 60s will be renting privately by 2040.  

So, what are the pros and cons of residential property? 

Residential buy to let shares a lot of the characteristics of buy to let in general. 

Pros 

  • Can earn regular monthly income through rent. 
  • Can earn a huge pay-out later down the line thanks to capital appreciation. 
  • Don’t need to be picky with tenants, with young people and retirees available. 
  • Easy to understand and get started with. 
  • Can have a completely hands-off investment with a property management company. 
  • Less risky with high demand for rental property and strong growth rates. 

Cons 

  • A long-term strategy so won’t see instant returns. 
  • Chances of void periods if the property is left vacant. 

Student Property Investment

Similar to residential property, student buy to let is the idea of purchasing a property and renting to students. 

The UK student market is thriving at the moment, with a record number of international students attending UK universities. 

And with predictions for 500,000 more students by 2030, the market is only going to get better. 

There are plenty of student cities to choose from, and you can invest in both purpose-built student accommodation and HMOs (which will be mentioned later).  

The key to student buy to let is understanding student populations and investing in cities with excellent universities, a strong job market, and top nightlife opportunities.  

A good indicator of this is researching the graduate retention rate of cities, with the likes of Liverpool, London, and Manchester, having some of the highest. 

Whatever city you choose, student buy to let can be a wise choice due to its affordability and high rental yields. 

As purpose-built student accommodation apartments are usually smaller and more compact, prices are traditionally far cheaper than normal apartments, giving an even bigger scope for a successful investment. 

You can buy some top student property with RWinvest, like ELEMENT – The Quarter phase 4, for just £99,950. 

Pros 

  • Low property prices and huge returns potential. 
  • Can earn regular monthly income from rent. 
  • Capital growth potential, though not as much as residential buy to let. 
  • Huge rental demand. 
  • Often sold with the services of a property management company so hands-off. 

Cons  

  • Limited to only one tenant group. 

Houses of Multiple Occupancy (HMO)

When many start their investment journey and want to know how to buy property, many opt for HMOs. 

A house of multiple occupancy is a residential build that features more than one tenant. It is an increasingly popular investment type in cities like Liverpool. 

Often, these buildings are split into different rooms, with each room rented out within the property.  

HMO’s tend to feature student tenants, with these shared student houses typical for university students in their second, third, and final years of study. 

It’s important to note that there is a tonne of legislation surrounding HMOs, particularly surrounding safety, so it’s essential to get to grips with the law before investing. 

Similarly, there are talks of local councils banning or limiting the creation of HMOs, with many locals unhappy with the practice.  

This is worth keeping in mind if you do opt for this buy to let investment strategy. 

If you’re asking how to buy property, it isn’t recommended you opt for this method, particularly with difficulty involved with the legislation.  

Pros 

  • Can generate income from multiple tenants. 
  • Less chance of void periods as if one tenant can’t pay, other tenants can. 

Cons 

  • Complex tax rules and legislation so not ideal for beginners. 
  • If you need finance options like a buy to let mortgage, you may struggle to get one for HMOs. 
  • A wider trend of people wanting more luxury accommodation may make HMOs obsolete.  
  • Council initiatives prohibiting the creation of HMOs, so might not be a strong future. 

Hotel Lets

If you’re asking how to buy property, this method will likely not meet your expectations. 

A more obscure investment strategy, hotel buy to lets can be incredibly profitable but come with some high risks. 

The way it works is that an investor can purchase a room within a hotel build, with the investor taking a cut of the cash of any guests that stay in the room. 

This is far removed from more traditional buy to let strategies, as you don’t have a tenant. 

Instead, you will be relying on those travelling for holidays or business purposes. 

Hotel lets are also very hands-off, with no need to oversee tenant acquisition.  

There are some serious drawbacks, though. 

Pros  

  • Potential for large returns in busy hotels. 
  • Completely hands-off strategy with no tenant demands to deal with. 

Cons 

  • A hotel could go bust and make you lose your investment. 
  • The hotel may not be popular, so long void periods. 
  • Have no control over business decisions and cannot control reputation, so bad reviews may drastically impact the potential for earnings. 

Holiday Lets

If you want to know more about investing in rental property for beginners, holiday buy to lets are an excellent choice. 

Here, investors can purchase a property to rent on a short-term basis to holidaygoers. 

Typically, you can advertise these properties on websites like Airbnb, which is becoming a trendy platform for those letting out properties to tourists. 

You can get some excellent returns by letting out holiday homes, but you’re going to encounter one big problem: the seasons. 

The holiday business operates on a season-by-season basis, with you likely to get very little interest in your property in mid-winter compared to the summer, depending on location. 

It will also heavily depend on what area you invest in. You will ideally aim for popular tourist spots, but that may get expensive. 

If you already live in a popular tourist area, and your house is large, you could always rent a room in your property through Airbnb. 

While you may not get the most income from it, there are many tax advantages for going down this route. 

For instance, the government has a Rent a Room scheme, which means you can earn up to £7,500 tax-free if you let out furnished accommodation within your home. 

Overall, this is a decent answer if you’re looking for investing in rental property for beginners, but there are better options out there. 

By buying renting property such as traditional residential and student buy to let, there is more scope for high returns and stability.  

Pros 

  • Allow potential for decent rental income if the property is quality, and the area is popular. 
  • Tax advantages for renting out a room. 

 

Cons 

  • If you need to buy a property, securing a buy to let mortgage can be difficult. 
  • Will need to maintain the property and organise cleaning after every guest.
  • High chance of long void periods if the area sees seasonal tourist demand. 

 

Overall, there are plenty of investment strategies out there for you to consider when buying renting property 

If you want to find more about the latest property investment strategies, check out our detailed top 10 guide. 

Speak to Our Property Experts Today to Learn More About Buying Rental Property 

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13) Think About Regeneration

14) Off-plan or Already Built?

Let’s be honest, we all want a good deal on our investments. 

Why spend over the odds when you can get a property for even cheaper than market value? 

It sounds fanciful, but there are ways to ensure you get high-quality properties for as cheap as possible, and that is by buying a house for rent off the plan. 

But what do we mean by buying off the plan, and is it worth it over buying more traditional investment properties? 

Off-plan property is a property that is available to buy despite not being finished yet. This means it can either be under construction still or is only in the planning stages. 

On the surface, investing in an asset that isn’t yet tangible is risky 

While this can be the case if you don’t research properly, offplan is one of the more ideal forms of property investment. 

Step-by-Step Guide for Investing in Off-Plan Investment Properties Step-by-Step Guide for Investing in Off-Plan Investment Properties

How to Invest in Off-Plan?

Let’s say you’ve decided to get the most affordable properties on the market and opt for the off-plan route. What next? 

Well, here is a step-by-step guide for investing in off-plan investment properties. 

Step 1- Do Your Research 

Like any property project, you need to first get to grips with the ins and outs of offplan investment property and what it entails before investing. 

Step 2- Choose a Location 

As discussed, try and pick a location with high market growth potential and strong rental yields. 

Step 3- Select Residential or Student Property 

Each property type has its pros and cons, so choose carefully which type you wish to invest in. 

Step-by-Step Guide for Investing in Off-Plan Investment Properties Step-by-Step Guide for Investing in Off-Plan Investment Properties

Step 4 – Explore Financial Options 

It can be challenging to secure a buy to let mortgage due to timing issues, but it is still possible. It will be easier to buy off-plan property if you have the full cash amount available. Remember, you can usually buy in steps, so you don’t need the total amount right away. 

Step 5 – Do Your Due Diligence 

Make sure you investigate the company you’re investing with and check out their reviews and track record. 

Step 6 – Choose a Property and Pay a Reservation Fee

This is kind of like a deposit and ensures your property isn’t sold to anyone else. 

Step 7 – Solicitor Carries Out Legal Aspects 

You will need a conveyancer to deal with the legal aspects. You can get your own, but sometimes investment companies will give you a solicitor who is well versed with investment properties. 

Step-by-Step Guide for Investing in Off-Plan Investment Properties Step-by-Step Guide for Investing in Off-Plan Investment Properties

Step 8 – Pay Your Deposit and Exchange Contracts 

This is the exciting part as you near full ownership of the property. 

Step 9 – Complete Your Purchase Upon Completion of Property 

Pay off the rest of the price of the property when it reaches completion. Congratulations, the property is now yours. 

Step 10 – Think of an Exit Strategy 

You won’t want to sell for a long time, but it’s important to eventually think about your exit pointBe sure to take advantage of strong capital growth in the future and sell at the right time to maximise your profit. You also may want to connect with an experienced agent or company when looking to sell your property down the line. Property Solvers, for instance, are a company that specialises in this regard.

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15) Avoid Fixer Upper

Property remodelling Property remodelling

If you want to know about investing in rental property for beginners, you should avoid a fixerupper. 

When we say fixerupper, we refer to investment properties that need a lot of work done before its suitable for renting or selling. 

Reviving a weather-worn property can be a considerable undertaking and requires a significant budget and knowledge to get it in top shape. 

While you will likely save a tonne of money when buying the property, the amount you could spend may eventually surpass the savings you made, with solo housing projects notorious for going over budget. 

Plus, if you choose to rent the property afterwards, you may not be seeing a significant return on your investment. 

If you have the expert knowledge required, then a fixerupper is possible, but it is not recommended for beginners. 

When looking at investment properties, stick to more traditional methods for now while you are still learning the trade. 

16) Choose an Investment Company 

If you feel auctions and finding properties yourselves is daunting, don’t worry; many beginners think like that. 

It can be intimidating choosing a property as a beginner because it can be difficult finding assets with the best investment potential. 

If you want to know how to buy investment property as easily as possible and avoid this hassle, one method is to use the services of a property investment company. 

These companies can help you invest in property, and can easily guide you through the process of learning how to buy investment property. 

Companies like RWinvest will provide solicitors and identify properties with the best investment potential. 

Investment companies also work with developers to offer properties to customers at a cutprice. 

Due to their expertise and industry knowledge, these companies will know what makes a good investment and will typically only offer properties with a high chance of success. 

Here at RWinvest, we are a property investment company specialising in residential and student property.  

We’ve been in operation for over 17 years and have helped a whopping 75,000 investors make the investment of their dreams. 

Advantages of Using an Investment Company

Instead of crawling through property portals for hours trying to find the best unit available, investment companies have already identified the most worthwhile properties on offer so most of the work is done for you. Learning how to buy investment property has never been easier. 

Moreover, you can talk to a property specialist and discuss precisely what you want in your ideal property investment. Then, the specialist can guide you through your options and pick out the perfect property for you. 

As a beginner, it’s going to be challenging to pick out the best units available.  

But thanks to the expertise of property investment companies, the property specialists have already done the hard work for you and have picked out properties in highgrowth areas. 

For instance, RWinvest has properties from across the UK but focuses heavily on the North West due to the strong market potential in the area. 

Finding the services of a property management company can be tricky, but luckily investment companies can put you into contact with them. 

You’ll find that on certain property developments, there will already be an in-house management company ready to take over the running of the property upon completion. 

Using the services of an investment company will ensure you can get a hands-off investment as efficiently as possible. 

Many property investment companies like us offer several off-plan property investment opportunities, which means you can get high-end properties for even cheaper than usual. 

Better yet, some companies will offer exclusive deals, including exclusive properties you won’t find anywhere else. 

For instance, here at RWinvest, we offer free furniture packs on select properties worth over £5,000. 

Moreover, to increase this affordability, investment companies can offer structured payment plans.  

Instead of paying the bulk fee upfront, you can now pay in increments making it far more accessible for beginner investors. 

If you want to know how to buy investment property cost-effectively, investment companies can be an excellent choice. 

As an extra incentive for investing, some companies will offer assured rents for a specific time, typically for multiple years. 

This is great for beginner investors, as they won’t have to worry about rental returns for the near future. 

Here at RWinvest, we have properties with 8% assured returns, such as ELEMENT – The Quarter, which has just launched phase 4.  

One of the more challenging aspects of property investment is getting to grips with all the paperwork you need to do. 

Not only are there several pieces of documentation you need to handle, but you also need to find and hire a solicitor to help with the legal aspect.  

However, with an investment company, most of the paperwork is handled for you. Some companies also offer you the services of a solicitor already familiar with the property world. 

This makes the process even simpler and faster. 

Notably, for beginners, using an investment company can help teach you about the basic framework for any future investments. 

Through an investment company, you will learn all about the buying process while being guided by experts.  

After a successful venture, this process will help you feel more confident and could inspire you to invest further and expand your property portfolio. 

When it comes to learning how to invest in rental property, there are few more beginner-friendly ways than investing with an investment company.  

Time Saver

Instead of crawling through property portals for hours trying to find the best unit available, investment companies have already identified the most worthwhile properties on offer so most of the work is done for you. Learning how to buy investment property has never been easier. 

Moreover, you can talk to a property specialist and discuss precisely what you want in your ideal property investment. Then, the specialist can guide you through your options and pick out the perfect property for you. 

Decades of Experience

As a beginner, it’s going to be challenging to pick out the best units available.  

But thanks to the expertise of property investment companies, the property specialists have already done the hard work for you and have picked out properties in highgrowth areas. 

For instance, RWinvest has properties from across the UK but focuses heavily on the North West due to the strong market potential in the area. 

Help You Choose Property Management Companies

Finding the services of a property management company can be tricky, but luckily investment companies can put you into contact with them. 

You’ll find that on certain property developments, there will already be an in-house management company ready to take over the running of the property upon completion. 

Using the services of an investment company will ensure you can get a hands-off investment as efficiently as possible. 

Cheaper Prices, Payment Plans and Exclusive Deals

Many property investment companies like us offer several off-plan property investment opportunities, which means you can get high-end properties for even cheaper than usual. 

Better yet, some companies will offer exclusive deals, including exclusive properties you won’t find anywhere else. 

For instance, here at RWinvest, we offer free furniture packs on select properties worth over £5,000. 

Moreover, to increase this affordability, investment companies can offer structured payment plans.  

Instead of paying the bulk fee upfront, you can now pay in increments making it far more accessible for beginner investors. 

If you want to know how to buy investment property cost-effectively, investment companies can be an excellent choice. 

Assured Rental Returns

As an extra incentive for investing, some companies will offer assured rents for a specific time, typically for multiple years. 

This is great for beginner investors, as they won’t have to worry about rental returns for the near future. 

Here at RWinvest, we have properties with 8% assured returns, such as ELEMENT – The Quarter, which has just launched phase 4.  

Paperwork Handled

One of the more challenging aspects of property investment is getting to grips with all the paperwork you need to do. 

Not only are there several pieces of documentation you need to handle, but you also need to find and hire a solicitor to help with the legal aspect.  

However, with an investment company, most of the paperwork is handled for you. Some companies also offer you the services of a solicitor already familiar with the property world. 

This makes the process even simpler and faster. 

Gain Valuable Experience

Notably, for beginners, using an investment company can help teach you about the basic framework for any future investments. 

Through an investment company, you will learn all about the buying process while being guided by experts.  

After a successful venture, this process will help you feel more confident and could inspire you to invest further and expand your property portfolio. 

When it comes to learning how to invest in rental property, there are few more beginner-friendly ways than investing with an investment company.  

Speak to Our Property Experts Today to Learn More About Buying Rental Property 

Contact Us

Disadvantages of Using an Investment Company

We’ve looked at all the top advantages of buying through an investment company, but what about the disadvantages.  

Well, if you’re asking how to invest in rental property through an investment company, there are some disadvantages you should consider.

Many people enjoy the control of property investment and are excited about the personal journey of finding a new property venture from scratch. 

If this is you, you may not enjoy the hands-off experience of property investment companies, as the bulk of the journey is handled by other experts.  

If you’re a beginner, it’s highly recommended you use the services of an investment company to build up experience. 

Many investment companies specialise in specific areas or property types. This means using their services will restrict you to precisely what is on offer from the company. 

For instance, if you’re looking for a big house or an HMO, using RWinvest isn’t recommended as we specialise in residential flats and apartments due to the more affordable prices and higher rates of return. 

Overall, property investment companies are perfect for beginners. If you want to learn more, check out our guide to property investment companies. 

Miss Out on Hands-On Experience

Many people enjoy the control of property investment and are excited about the personal journey of finding a new property venture from scratch. 

If this is you, you may not enjoy the hands-off experience of property investment companies, as the bulk of the journey is handled by other experts.  

If you’re a beginner, it’s highly recommended you use the services of an investment company to build up experience. 

Limited Investment Choices

Many investment companies specialise in specific areas or property types. This means using their services will restrict you to precisely what is on offer from the company. 

For instance, if you’re looking for a big house or an HMO, using RWinvest isn’t recommended as we specialise in residential flats and apartments due to the more affordable prices and higher rates of return. 

Overall, property investment companies are perfect for beginners. If you want to learn more, check out our guide to property investment companies. 

If you want to know how to buy investment property as easily as possible and avoid the hassle, one method is to use the services of a property investment company.

Daniel Williams, RWinvest

17) Buy Outright or Use a Buy to Let Mortgage?

18) Shop Around for the Best Mortgage 

It’s easy to get carried away when getting excited about starting your property venture, but you need to think smartly and try and be as costeffective as possible. 

This notion not only applies to selecting property, but it also applies to the mortgage you decide to get (if you want one). 

You can get mortgages from both banks and building societies, but scepticism is key. Are they truly offering you the best rates possible? 

For this reason, be sure to shop about and research thoroughly what the best deals are. 

You can even opt for the services of an independent broker who will help guide you through your options to see what’s right for you. 

There’s no rush to get started in property, and you should take your time so you make the best decision possible.  

A huge bit of advice when asking how to buy an investment property is to try and save as much money as possible. 

When people ask how to buy an investment property affordably, they often think of saving money on the house itself. 

While this is obviously something you should do, it’s well worth trying to pick the best mortgage deal possible as you will save plenty of money when buying a house to rent out later down the line. 

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19) Think About What Your Target Tenant Wants

Property Feature Ranking Before and After the Covid Pandemic Property Feature Ranking Before and After the Covid Pandemic

When looking for a rental property and asking how to buy an investment property, purchasing rental properties that meet your personal taste is not always a good way to go.  

This is one of the biggest mistakes many investors make when looking at buying homes to rent, with many investors buying a rental property with decor and designs that don’t appeal to the wider market. 

To succeed in buy to let investment, you always need to have tenants living in your property.  

Therefore, buying rental property that’s more likely to appeal to your target tenant is a good way to avoid your rental property going empty. 

The best way to find a property that your tenant will love is to try and get into their mindset. 

If you’re looking at buying homes to rent for students, think about the qualities that students want from their accommodation.  

This includes things like a location with shops and bars nearby and proximity to their university campus, along with qualities related to the interiors of the property, such as plenty of storage space and a built-in desk area. 

Covid-19 and the ensuing lockdowns have changed a lot about what tenants want. 

A study in 2020 from estate agents Benham and Reeves found marked changes in what tenants look for in a property. 

Investment Property - Living Room Interior Investment Property - Living Room Interior

The previous rank came from 2019, and as you can see, fast broadband, outside space, and proximity to a park are vital. 

Be sure to keep these aspects in mind when considering buying a property and looking at buying homes to rent. 

There are also ways you should consider decorating your property to increase tenant demand.  

When buying homes to rent, you may find that most rental properties have been decorated with a minimal colour scheme, featuring more simplistic furniture and fittings. 

While your personal taste may not align with the properties on the market, remember that what you find appealing may not match up with your tenant’s taste.  

Keeping your property as neutral and minimal as possible while also factoring in certain qualities that your target tenant favours, is a good way to increase rental demand and generate regular income. 

Top Tip: If you’re purchasing an investment property sold by an investment company, it’s worth enquiring about any furniture packs that may be available.  

Here at RWinvest, many of our rental properties come with a choice of furniture pack which can be purchased for an additional cost or can sometimes be free.  

Furniture packs feature stylish hand-picked pieces that match the style and feel of each space and could help you attract more tenant interest. 

20) Keep Taxes and Tax Relief in Mind

21) Consider Forming a Limited Company

If you read the last section, you will know individual landlords have been struggling with tax relief recently when buying rental properties, thanks to a host of changes in 2020. 

To counteract this, many individuals have opened their own limited company when buying rental properties. 

With so many landlords going down this route, it would be remiss not to consider it. But what does it actually mean for you? Should you form a limited company when buying rental properties? 

Well, first and foremost, there are tax advantages to operate as a company. 

Limited companies aren’t affected by the changes made to mortgage interest tax relief because interest can be classed as a business expense and is fully deductible from your income.  

Speaking of income, one huge benefit of forming a limited company when buying to rent is corporation tax. 

Corporation tax is currently a flat rate of 19%. It means you can make significant tax savings if you earn over £50,000 or £150,000, with individual landlords subject to the 40% to 45% tax rates.  

This all sounds great on the surface, but actually getting income from the company can be complicated, as money can’t be taken directly out. 

Instead, you will have to take the money as a dividend or take the money as salary. 

Both cases can be complicated as the former is subject to tax rates of 7.5% for a basic rate, and 38.1% for higher rates. 

Meanwhile, taking money as salary means you will need to operate PAYE and provide national insurance contributions, which can be even more expensive than taking the dividend route. 

The bottom line is tax can get complicated when buying to rent, and it’s best to talk to a trained specialist to understand your financial situation and decide what’s best for you. 

22) Play the Long Game 

Owning a rental property can be highly profitable, but only if you’re prepared to play the long game.  

By this, we mean tying your investment up for a set period of time to generate the maximum amount of rental income and, ultimately, huge capital growth returns. 

Playing the long game also includes keeping hold of your rental property through times of uncertainty.  

It’s common for investors to panic during periods that the economy and property market seems unstable.  

A good example is the recession of 2007. During this time, many property investors sold their properties out of fear that they would lose money.  

In reality, investors who held onto their rental property investments during this time have now seen property prices grow higher than they were before the recession, benefitting from significant capital gain. 

The same logic can be applied to the UK property market in 2020 and 2021 

Due to economic uncertainty brought on by the Covid-19 pandemic, many property investors were feeling concerned about their venture.  

However, with lower than usual property prices currently available, savvy buyers can purchase a rental property for a discounted amount. 

It means that those buying to rent will now benefit from the increased rental demand that the market is currently seeing and experience significant future capital growth rates. 

Let’s use a practical example to show the be