Property is a common route for investment as there is always going to be value in it in the long run. If you are considering developing a property portfolio and becoming a landlord yourself, here is our guide for all that you should consider before taking those first steps.
Some people may choose to buy property to do up, then sell on. Others may want to own a range of properties and rent them out to ensure a steady income. The guidance in this blog is on the latter.
How to become a landlord
Let’s first look at becoming a landlord. The first step is to purchase the property that you will rent out.
Identify the type of property or an area in which you wish to purchase, in consideration of how much money you have to invest.
Do you have a target market for the type of tenant you want? Students, couples or families will all have different priorities that could affect the locations in which you choose to purchase. Location will also impact the amount of rent that it is fair to charge in a specific area, so having clarity on your desired earnings from the property will play a part in your decision making.
Funding the Purchase
Another strategy to consider when purchasing property to let out, is how you will fund the purchase? If you are looking at becoming a landlord and developing a property portfolio, you should have a reasonable amount of savings / assets available to achieve your goal.
Cash purchase or Buy-to-Let mortgage?
These are your two options when deciding to become a landlord.
Will you invest in a property outright as a cash purchaser, or would you prefer to split the lump sum out into deposits for Buy-to-Let mortgages on a handful of properties?
As a cash purchaser you will have no mortgage instalments to repay so the majority of rental payments could be direct income for you and perhaps enable you to be more competitive on price. The income from multiple properties with the Buy-to-Let route would of course be higher, but it comes down to personal circumstances. For example, there is no guarantee that you would be approved for a Buy-to-Let mortgage.
The minimum deposit required for a Buy-to-Let mortgage is higher than that of a personal residential mortgage, usually around 25%. The usual checks including your credit rating will be examined as part of your application, as well as the condition of your mortgage for your own home, if you have one.
A benefit of having multiple properties with Buy-to-Let mortgages means that, on the occasion that one property may be empty or not profiting, the income from any other properties can bridge the gap. We would suggest beginning with one property, and building up to multiple properties if you feel like you are in the position to do so.
Additional Considerations and Outgoings
Below is a handful of additional costs that will need to be thought through when becoming a landlord. Adhering to regulations, laws and making sure the property is safe to live in, are all extremely important and must be dealt with in an ongoing manner.
- Maintenance of the property – will you be the direct contact for tenants, or will you have an agent manage the day-to-day maintenance?
- Refurbishment, redecoration, fixtures and fittings – depending on the condition of the property upon purchase, you may have to improve elements of the property to make it liveable, but also to be able to charge a fair rent in line with how well kept the place is.
- Tax on your rental income – depending on which tax bracket you are currently in, additional income may move you into a higher tax bracket, so do your research.
- Mortgage fees, empty periods, landlord insurance, letting agent management fees, etc. – there are additional costs that come with being a landlord, which should be considered when deciding how much is an acceptable rent to charge.
Developing a Property Portfolio
No matter how much money you have in the bank, a property investment is always going to be a substantial transaction that should be measured and thought through. When developing your property portfolio, you want to ensure that everything is done properly and that you are getting the best possible value.
When you are new to the property game, it is advised that you start small and build on that. Taking one property at a time and applying the learnings to future transactions and expansion will ensure that you make the best possible decisions at each point in your journey toward a complete property portfolio.
Understanding the property market will dictate the best conditions to buy in:
- Is your purchase well-timed?
- Can you get a bargain, or should you hold off buying until things settle down?
- Do you have a strategy for expansion?
You don’t want to overpay unnecessarily, and having the counsel of a property expert who understands changing market conditions could help you to make the best-suited decisions. For example, there may be plans in the works for a new development that you may like to evaluate before diving into investing in a particular property or location.
Guidance from a Property Expert
Having a property professional on side throughout the process of building a property portfolio could work wonders.
Planning ahead, making informed decisions and strategising for expansion can all be greatly improved with the help of someone who understands the drivers and drawbacks of the market.
Sense check your plans to ensure they make financial sense and seek guidance on recommendations with your property specialist.
Whether it is early days and you are exploring your options for investment, or if you are ready to make the move into becoming a landlord, we highly recommend speaking with a property expert.
Our property team have specialisms in residential development as well as the conveyancing process. We have close partnerships with several estate agents and lenders, so we can put you in touch with the relevant specialists to help you make informed investment decisions, and to do it properly.
Call in on 0161 969 3131 or fill in our contact form in the first instance, and we will be in touch to discuss your requirements further.