Five things that make a good buy-to-let property

Holly Thomas / 01 April 2015

With rents increasing, buy-to-let is becoming a good investment option for people releasing money from their pension pots and looking at ways to generate an income for their retirement. Holly Thomas shares five things that you need to consider when buying a property to rent out.

Property is an attractive bet for income-seekers because returns from buy-to-lets can generate a decent income at a time when many of us have become disillusioned with stubbornly low interest rates from banks, but don’t want to put more money into the stock market.

If you are considering buy-to-let, here are five things to consider...

Not sure what you should look for when viewing houses? Read our guide. 

1 Location

Buying in an area you know can help, but don’t restrict yourself to your own immediate area.

While you will know the neighbourhood and surrounding postcodes well, make sure you research others nearby, where the rental yields may be much better.

Convenience is a useful factor for prospective tenants. Being within walking distance of shops, railway stations, the town centre and so on will ensure that your property is high on the list of desirable places to live for tenants.

Try to avoid run down areas that will attract poor-quality tenants.

2 Property type

Two-bedroom houses and flats are ever popular and appeal to a wide range of potential tenants, especially those who are finding it tough to get on to the property ladder.

Large family homes can command large rents but they appeal to far fewer potential tenants.

You might want to steer clear of period properties too, avoiding high costs on maintenance when things (inevitably) go wrong.

Newer homes will require less maintenance – but watch out for service charges.

3 Crunch the numbers

Achieving both a good rental yield (income) and capital growth (a rising property value) is difficult.

As a rule, higher-yielding properties are typically at the lower end of the housing market: as rents increase the number of potential tenants narrows and yields begin to fall away.

In contrast, for capital growth, values at the lower end of the market generally do not rise as rapidly as for higher priced properties in desirable areas. Remember, you are not purchasing to sell again in a year. You will probably own the property for the rest of your life and then bequeath it, so concentrate on getting the best rate of return on your money.

Speak to a broker if you need to get a buy-to-let mortgage. Buy-to-let deals are competitive but a broker can help you get the best deal.

Don't get caught out by estate agents. Read about the six sneaky tricks they use.

4 Ongoing costs

It is important to factor in borrowing costs, management fees and maintenance costs.

A study by LV= says landlords spend approximately 60% of rent on costs, leaving them a pre-tax profit of 40% on average. Don’t forget to budget for void periods in between tenancies.

5 Your responsibilities

There are many responsibilities that come with being a landlord.

You are legally required to keep a deposit in an approved deposit scheme which offers security for both tenant and landlord. There are three approved schemes to choose from and you must supply a tenant with a host of information, such as the name of the authorised scheme you are using, how they will apply to get the deposit back at the end of the tenancy, an explanation of the purpose of the deposit and what to do if there is a dispute.

By law, you must have gas and electrical equipment checked annually by a registered engineer. You must also pay for an energy-performance certificate, although this is only required when marketing a property for rent. 

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.