How to choose the right property for buy-to-let investments

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How to choose the right property for buy-to-let investments

types of buy-to-let property investments
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    If you are considering buying rental property and becoming a landlord, there are many different factors to consider.

    Our mortgage brokers take a look at the different options for long-term investment in property, from what sort of property to purchase to how to manage your ideal tenants and your tenancy agreement.

    What types of buy-to-let property are there?

    There are many different types of buy-to-let property, each with its own advantages and disadvantages.

    Some of the most popular types include:

    Holiday lets

    The target market here is tourists and other short-term visitors. They can be a great way to generate income, especially in popular destinations such as the coast or big cities.

    However, they can also be more demanding to manage than traditional buy-to-let properties, as you will need to find tenants and clean the property between each stay which adds significantly to maintenance and admin costs.

    Holiday lets often attract higher rent than properties on longer rental agreements as there is much more administration involved. These types of properties often carry a higher interest rate compared to normal buy-to-lets.

    Airbnb hosting

    Airbnb is a website and app platform that allows a landlord to list their house or flat for rent, usually on a short-term basis.

    Potential renters can view all the available properties in the area to find one which suits their budget. You can achieve a good buy-to-let investment return on AirBnB if your property is in a desirable location with nearby parking or good transport links and you are competitive in the market.

    Higher demand and higher turnover of tenants means more work and time invested when compared to a normal buy-to-let property. You would also tend to pay a higher rate of interest compared to normal BTLs.


    HMO stands for House in Multiple Occupation. These properties are rented out to multiple tenants, often students, who share a kitchen and bathroom.

    HMOs can be a good way to generate higher rental income than traditional buy-to-let properties. However, they can also be more difficult to manage, as you will need to find many tenants who are compatible with each other.

    HMOs are often rented as student houses in university towns where there is a high demand, with tenants looking for shared property to rent.

    Traditional buy-to-let

    Many residential property owners move into the buy-to-let market when they are considering moving home.

    You may be able to buy your new residential property without having to sell the old one. This property can then become a rental property which can give you a rental yield to top up your monthly income, sometimes over long periods. This is often called a Let to Buy.

    If you rent out your property, you will need to convert your residential product into a buy-to-let (BTL) product or seek consent to let from your current lender. Buy-to-let mortgages usually have higher interest rates because it is treated as a business.

    Young professionals are often renting property while they save a deposit for their own home, so a traditional buy-to-let can be a good investment, especially near cities and other centres of employment. Families also rent larger properties. For example, maybe they don’t have the budget or funds to purchase of their own.

    Even with rising interest rates, buy-to-let investment is still very popular with people looking for long-term capital growth.

    Key considerations to make when investing in buy-to-let properties

    Before you embark on your property investment, it’s a good idea to think carefully about how much you can afford to invest, how long you are prepared to be in the rental market and whether you can find the type of property you need that will bring the desired returns.

    Remember to factor in costs such as stamp duty on a second property which can add significantly to the purchase price of your investment.

    Analysing the yield and return

    Rental yield is important because it determines how much money a lender will be prepared to loan to you against your property price.

    A mortgage company offering BTL will typically want to see monthly rental income at least 25-30% higher than the mortgage payment.

    As a rule of thumb, you would want to see at least 6% to 8% yield on your return. To calculate the rental yield, you should divide your annual rental income by the property value, then multiply it by 100 to get your yield. For example, £12,000 a year rent, divide by a property worth £200,000, is 0.06 x 100 is 6, so a 6% yield.

    Getting the right mortgage deal for your investment

    Mortgage rates for BTL property purchases are generally higher than the equivalent loan-to-value on residential products.

    This means your mortgage payments will be more expensive if you convert to a BTL product on becoming a landlord.

    Many landlords take mortgage interest-only products to reduce the monthly cost, paying back the capital when they eventually sell the property. In the current climate with high taxes and rates, landlords are looking for good long-term capital returns on a purchase.

    Who are your ideal prospective tenants

    Ideal prospective tenants are people who pay their rent on time every month and who will look after your property as you would yourself.

    No specific tenant type is perfect; no tenant is guaranteed, so make sure you do your due diligence before agreeing to rent to a tenant.

    So cover yourself with a good tenancy agreement, insurance and smoke alarms in case of accidents or deliberate damage. Many families and students are always looking for properties to rent, make sure you invest time in checking out their situation and ability to pay the rent on time.

    Will you be moving your buy-to-let properties into a limited company

    BTL investments can attract significant income tax, so you could consider purchasing via a limited company where you will be charged corporation tax instead.

    You are then able to fully offset the interest as a cost, which you are not able to do as well in personal names.

    Limited company mortgage rates do tend to be higher when compared to standard BTL rates. You should speak to a financial advisor or accountant to understand the impact of taxation on your personal situation.

    Looking for a buy-to-let mortgage? Get in touch with us

    Finding the right BTL mortgage means searching the market carefully, which can be time-consuming. The costs can vary depending on the lender, so having a mortgage expert available who understands the whole. Contact us today!

    Picture of Andrew Simmonds

    Andrew Simmonds

    Andrew Simmonds is the managing director at Simmonds Mortgage Services. He's been providing mortgage advice to home owners for many years.

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