In our latest blog, we’re looking at 10 things to remember before you buy to let. Like any business, you should treat the beginning of your property investment journey the same as you would any business. By taking advice from professionals, considering your finances and the tax implications of your business carefully, and the challenges that you will face. 

10 things to remember before you buy to let

Consider your location carefully

There isn’t a corner of the UK that doesn’t have a property rental market. But that doesn’t mean that every area is going to suit what you want to achieve or be a good fit for your business model or personality. Rental yields differ from region to region, as do house prices and the types of buy to let property that will make you money.

We are strong advocates for investment in the North of England and Midlands. Property prices in the three regions are forecast to continue rising over the next few years, with strong yields for investors over the short term (rental income) and the long term (sales). The North East, North West, and Midlands are forecast to outperform other areas of the UK. 

That said, some investors prefer prime markets like London, where percentage yield is lower, investment costs are far higher thanks to much higher property prices, but cash returns are higher as a result. 

There is plenty of data and case study information available to look at when you’re considering where to invest, and your decision should be based on a long term outlook, and how you wish to run your property investment business, not simply the idea of generating lots of cash in the short term.

Do your sums

Buy to let property can be a costly business if not carefully planned. This is probably the most important consideration. Plan ahead. Do you understand the costs if things go wrong? What happens financially if your rental property lies unlet for a period of time? Could you continue to make your buy to let mortgage payments?

On the flip side, what will mean for your business in the short, medium, and long term? 

You will have a number of costs to consider as well, including property management, landlord insurance, regulatory costs, maintenance, and so on. So understanding fully what these costs are will allow you to forecast your business finances accurately and understand how you can expect your business to perform.

For the first time investor, the knowledge and understanding that is needed to start on the right foot can be almost overwhelming.

Consider the short and long term tax implications

Property taxes for buy to let investors can be a complex business. Even mortgage interest can be treated differently depending on your business structure, income tax will play a part, and capital gains tax comes into play when you’re selling a buy to let property. You should also consider inheritance tax in your calculations and how you wish to pass your business on after you die. 

Take a look at our article Strategic Planning and Property Tax in Property Investment for more information on strategic planning. Ultimately, buy to let properties are an attractive investment that can yield great rewards if done right.

Consider how you structure your business 

It’s important to realise that your property investment, whether you plan to buy just one property or build up a portfolio, is a business. And depending on the type of business you start, your chosen business structure will affect how you operate, your tax liabilities, and your exposure to personal liability. Among your options are sole trader arrangements, partnerships, and incorporation. 

Familiarise yourself with current and future legislation

Your prospective tenants have very clear rights, and responsibilities too. And so do you. There is some significant legislation that you must comply with, and more is expected this year. 

Understanding the legislation, taking advice, and putting the right processes in place can help you to manage those responsibilities, and inform your tenants too. Take a look at our blog New Landlord Rules for the Private Buy to Let Sector for more information on upcoming legislation

Build your network of advisers and support

This is an important area that many people don’t consider until they are in a crisis. But it’s crucial to a growing business. There are obvious advisers that you will need like a mortgage broker with specialist knowledge who can help you secure the best buy-to-let mortgage. But there are other advisers to consider building into your network. 

A property investment consultant to help you source your properties, and work with you through your cash flow forecasting and planning. Tax adviser and specialist accountant, property management support, and even a mentor and someone to discuss your thoughts and ideas with to help you grow your business. 

Think about property management

Do you have the knowledge, time, and mental resilience to deal with the ongoing management of your buy-to-let properties? And the detailed knowledge of regulations that you and your tenants are responsible for? Property management can take away the stress and strain of managing your properties from day to day, allowing you to get on with the important business of running and growing your business. There are regulations that give tenants the right to expect certain things to be done. 

Maintenance, landlord visits, and tenancy agreements all have specific rules that you must follow. Property management means that you don’t have to worry about the specifics and you will have peace of mind knowing that, with the right partner, the interests of you and your tenants will be looked after. 

Consider your mental resilience

This might seem like a strange point, but you will have days when you just want to throw in the towel and wonder why you bought your first buy to let property! So consider what you need to do to manage your mental health. Stress and anxiety caused by difficult situations can soon grow out of control and impact your effectiveness. 

Putting the right business processes in place means that you can manage difficult challenges. And considering your own well-being and learning the tools and strategies that you need to thrive will make a big difference to the success, or otherwise, of your property investment business. Take a look at our sister company Identity Resource for guidance on managing your wellbeing.

Think about worse case scenarios 

Part of your business planning must consider disaster recovery and contingency planning. The “what happens if” questions. So “what happens if” you have to evict a tenant, which could take some time, you lose rental income as a result and then have to refurbish the property? Effective cash flow forecasting can help set up these scenarios

Not only could you lose income, but legal costs for eviction and costs to clear a property out and redecorate could have a big impact if you’re not prepared. This is a worst-case scenario but in no way impossible.

In scenarios such as this do you have the reserves to finance this property, the support and structure in place to act quickly, and the mental resilience to deal with it? There could be other scenarios like boilers failing, flooding and so on which cost far less. But understanding what these scenarios could be, and having the resource and plan in place will prepare you, and help your business recover more quickly in the worst cases.

Property investment should be considered a long-term investment, not a way to make a quick buck. Consider where a disaster would fit in over a period of years rather than the immediate future as well. 

Consider your why

Why are you buying your first buy to let property? Have you really thought about what you want to achieve? The answer might help you with your considerations for some of our earlier points like the structure off your business, where you invest, and the types of properties that you select. 

And the “why” will give you a reason to carry on when you have that “throw in the towel” moment. Is your ambition to achieve financial freedom? To und university for your children, or provide a retirement income? There are so many reasons why people start their property investment journey. What’s yours?

Hawkhurst InvestHawkhurst Invest supports you from the beginning of your property investment business at every stage with advice, support, and property opportunities to help you build and maintain a successful business. [insert contact button]