12th June 2019

Thinking About Becoming a Landlord? This Buy to Let Guide Will Help Get You Started.

How to Get Started as a First Time Buy to Let Landlord

Despite the introduction of a 3% buy to let Stamp Duty, and the demise of mortgage interest tax relief, the number of UK buy to let investors continues to climb. In 2018, that number reached a staggering 2.5 million – with buy to let landlords averaging 1.8 properties apiece.

Is Buy to Let Worth it?

It isn’t difficult to understand the allure of today’s buy to let market. After all, despite the financial commitment required, becoming a landlord can mean unlimited earning potential.

Some buy to let investors, in fact, have turned what amounts to a side income for others into a lucrative, full-time profession – and are currently earning millions from their buy to let empires.

Fertile Ground for Buy to Let Landlords

The current economic landscape is an attractive one for would-be buy to let landlords. Rising house prices across the country, coupled with a significant accommodation shortage, have produced fertile ground for many budding investors.

Add to this the fact that unaffordable one-bedroom flats have increased the demand for single rooms in many areas – and that buy to let mortgages are super-competitive – and it’s easy to see why so many people are adopting the buy to let lifestyle.

Whether your goal is to bring in a few extra pounds every month – or to eventually quit your day job – here are some key points to consider if you’re thinking about becoming a buy to let landlord.

How to Get Started as a First Time Buy to Let Landlord

What is a Buy to Let Mortgage?

Most first-time investors require financing to get started. A buy to let mortgage is essentially a specialist loan for homeowners and landlords planning to rent out their property.

Buy to let UK residential loans typically start at £100,000, include a loan-to-value of up to 80%, and can be used for any property type – including houses, flats, and multiple occupancy housing.

What is a Good Buy to Let Strategy?

If you’re wondering how the pros go about accumulating properties once their funding’s in place, here’s a common buy to let business model:

  1. Decide on a suitable area (see more below)
  2. Find an under-priced buy to let property (this is often one in need of refurbishment)
  3. Convert the property to accommodate more tenants
  4. Repeat the process with multiple accommodations

Even when applied to a single property, this simple strategy has endowed many a buy to let first time buyer with a steady annual income and increased property value.

Putting Your Buy to Let Mortgage Deal to Work

For clarity’s sake, let’s plug some numbers into the business model above and see how the cost of buying a buy to let property can bear fruit when you put your buy to let mortgage to work:

  • You’ve discovered an unloved, 2-bedroom terrace house in a high-rental region
  • With the help of your buy to let mortgage, you pay £70K for the property, and £30K to convert it to a 5-bedroom unit
  • With rental rates at £280 per room per month, you’re now earning almost £17K annually from your investment
  • As a result of the conversion work and increased income potential, your property’s buy to let value has risen to £170K
  • You leverage that value to acquire funding for your next buy to let property purchase

Bear in mind that, while things do happen this way for many investors, such a scenario involves a notable level of risk.

For a start, there’s the chance that a) your personal circumstances will change and prevent you from meeting your debt obligations, b) rents will drop off in your area, or c) buy to let interest rates will increase to the point where your mortgage is no longer affordable.

Why Balancing Buy to Let Costs Against Income is Crucial

Becoming a landlord means preserving the crucial balance between:

  • how much it’s going to cost to purchase your buy to let property
  • how much it’s going to cost to convert and maintain it
  • how much income you can realistically expect to earn from your property

Many expert investors aim for a minimum rental yield of 10%. That means that if your buy to let accommodation is valued at £170K, you should be seeking an income of at least £17K annually to offset any downturns or unexpected expenses.

Be aware that not every property (or region) in the UK is created equal when it comes to achieving a profitable balance. And if the numbers don’t work, not only will you not succeed as a first time buyer of a buy to let property, you’ll significantly increase your financial risk.

Where to Purchase the Best Buy to Let Properties

A good rule of thumb in terms of promising buy to let criteria is to stick to a region you know well, or that’s close to where you live or work. You should also only consider areas that boast a sizeable population of qualified tenants – working-age professionals, for example – and where the rental situation is favourable.

Here are some questions to consider while conducting your buy to let property research:

Is there a suitable demand for rental accommodation in the area? If so, what kind of accommodation are people seeking?

Are vacancy levels high, with too many units available for the size of the rental market?

How is the job situation? How is the local economy?

How much income can you expect to earn from your buy to let property, based on current rental rates in the area?

It’s also paramount that you look into regulations surrounding property conversion in what may appear to be a top buy to let location. The last thing you want is to find out after the fact that the property you’ve purchased can’t be upgraded in a way that will provide an appropriate level of income.

Some Final Buy to Let Advice

As a buy to let landlord, you should try to stay abreast of evolving real estate and rental market conditions, as well as the latest buy to let news. This will help you make informed decisions about buying, selling, and holding your accommodations as changes to buy to let tax and property laws unfold.

Finally, it’s important to recognize that becoming a landlord means not only dealing with tenant issues and evictions, it means doing what you can to keep renters happy. Beyond faithfully servicing your buy to let mortgage, first time buyers benefit most when they remember that their tenants play a pivotal role in their investment success.


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