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With dreams of retirement and extra income, more and more people are looking at buying a second property to rent out.
In fact, between 2001 and 2019, the number of British people owning a second property increased by a whopping 50%, and in 2020, roughly 5.6% of all property sales in the UK were classified as second homes!
But how should you do it? Well, that’s what we’re here to find out.
Here, you will learn:
Keep reading our guide to buying a second property to rent out to learn more…
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For many years, buying a second property to rent out has been a popular choice.
With the ability to earn money every month through rent, while also being able to sell the property further down the line for a hefty cash profit, UK property investment has proved a hit amongst many.
But after a record-breaking year in the property market, there has likely never been a better time to buy a second property.
There are currently four major reasons why investing in a second property to rent out is a good idea in 2023.
With these stats in mind, buying a second home to rent out is an incredibly exciting prospect for investors looking to make both short and long-term returns.
If you’ve decided that buying a second home to rent out is a good idea for you, there are some things you need to know before investing.
Perhaps the most important thing you need to know before buying an additional property is the costs involved.
When getting onto the property ladder, it’s important to familiarise yourself with the costs of buying additional property with plans to rent. This is so you can be sure you’re financially ready for a buy to let investment.
Currently, the purchase price of the average residential property is currently £285,009, according to the Land Registry.
This means the property worth of the average UK home has increased by 4.10% in the last 12 months alone.
Aside from the upfront cost of residential property, there are several other costs of buying an additional home you’ll need to consider, such as stamp duty and estate agent fees when selling rental property.
Here is a summary of the different costs of buying a second home to rent out, and the tax on second homes you can expect to pay.
For those unable to pay for property prices outright, you will likely have to opt for a buy to let mortgage.
But if this is your first time buying a second property to rent out, you may not be aware that mortgages work slightly differently for a buy to let investment.
There are some rules for buying a second home with a mortgage. They are:
This means that you will only pay for the interest every month, without touching the overall debt of your buy to let investment mortgage.
Come the end of the mortgage term, you will then have to pay off the full debt of the property – whether that be by selling the second home, or remortgaging.
Be sure to compare mortgages for residential property and your buy to let investment to look at the best mortgage options for you. You can also speak to a mortgage adviser to ensure you’re getting the best deal possible.
It is only possible to rent out a second home without a buy to let mortgage if you have outright ownership of the property.
If you’re using a residential mortgage to pay for the property but decide that you’d like to start renting the property out, you can request to switch to a buy to let mortgage.
To do so, you would need to speak to your mortgage lender to find out if this is possible for you.
Rather than buying a second property to rent out while living in your existing home, another option people consider is buying a second home and renting out the first.
If you’re still using a residential mortgage to pay for the first property, you may need to switch this to a buy to let mortgage, while using a residential mortgage to fund your second property.
Another cost involved with buying a second property to rent out is stamp duty tax.
Again, like mortgages, stamp duty on second homes works differently for those buying a second property, with investors having to pay an additional 3% stamp duty surcharge on the basic rate.
You can check out the latest rates below as of September 2022:
While buy to let mortgages and stamp duty are likely the biggest expenses you will pay, there are plenty of upfront and ongoing costs to consider.
Many of these expenses will depend on your goals.
For instance, if you already have a full-time job and don’t want the responsibility of being a landlord, you can opt to hire a property management company.
These companies will take around 10% of your monthly rent to deal with all landlord responsibilities.
Other fees you can expect are:
There’s also inheritance tax to think of if you’re planning to pass down your primary residence and additional property.
To get a full breakdown of how much money you need to buy property in the UK, click the link to check out our new guide.
You can also check out our buy to let tax guide to learn more about capital gains taxes, mortgage relief, income tax, and more.
Buying a second property to rent out can be a lucrative strategy, but not all strategies are made the same.
If you’re asking, “how can I buy a second property?” there are plenty of options you can consider.
Currently, the most popular property investment strategies in 2023 are:
While the best investment strategy will depend on your own investment goals, for our money, the current best way to invest is either through residential or student property off-plan.
This is so you can save as much money as possible, while also getting access to some of the most lucrative returns.
You can learn about all these strategies in our list of the best property investment strategies.
Here in the UK, not all regions offer the same investment potential.
With variations in house prices, rental yields, and tenant demand, it’s vital to research the best places to invest in property.
To get the most out of an investment, there are several aspects you need to consider to help you make the best investment possible.
Luckily, we’ve done the hard work for you.
According to the latest market data, the best cities offering all of these aspects are:
All these cities offer fantastic price growth potential, while also benefitting from short term rent and strong tenant demand.
You can check out our in-depth guides for each of these cities by clicking the links. Alternatively, you can see what other cities make the list by reading our top 10 guide to the best places to invest in property in the UK in 2023.
Many people who own a second property to rent out may not consider themselves buy to let investors if they only let the property out for shorter periods of time.
Using a second property as a short-term or holiday rental is a popular choice for those who don’t need access to their property all year round.
However, if you’re using a residential mortgage to pay for your second home, and don’t own the property outright, you will need to check with your mortgage lender on whether it will be possible to do this.
If you’re looking at buying a second home to rent, you’re likely doing so to increase your cash.
While this is an incredibly effective way of doing so, there are alternatives to consider.
Perhaps the main alternative is equity release.
Equity release is a way of getting cash out of your home without being forced to move.
Here, you can get a lifetime mortgage which allows the homeowner to borrow money against your home, which is then paid off by the sale of your home after death.
Notably, this is aimed at older residents, with you needing to be at least 55 to secure your equity release.
You can learn more about equity release from this guide.
If you have plans to rent and are keen to start earning money as a buy to let investor, then buying a second property to rent out is a great option.
Buying a second property to rent out in the UK allows investors to make significant earnings through rental income and capital growth, with a number of exciting opportunities available across top UK cities.
If you’re wondering how to buy a second property to rent out, here are 3 quick and helpful tips for buying a second home.
Still wondering ‘should I buy a second property to rent out?’ and feeling unsure of the investment process?
Please speak to one of our helpful property consultants at RWinvest, who can talk you through your options and help you find the perfect rental property.
RWinvest is an award-winning property investment company with over 18 years of experience in off-plan residential and student property.
Buying property through a company that is trusted like us is one of the best ways to secure a reliable buy to let venture.
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