In this post we’ll discuss some basic tips that will help you become a successful landlord if you are thinking about getting a buy to let property. Below are some of the main things you’ll need to consider when choosing and selecting a buy to let property to invest in.

Before investing in any buy to let you should put together a financial forecast working out how much money you expect to make from the property. Such a forecast should include income and expenses such as mortgage repayments, expected rental income, maintenance costs, income tax, service charges etc. Only by forecasting these things will you be able to decide if the property is a good investment opportunity.

Plan for 9 Months Occupancy

One common mistake new landlords make is presuming that the property will be let out for the full 12 months out of the year. In reality the actual occupied time of the property you rent out will be much less. Your rental property may be empty for a period of time after tenants have moved out while you look for another tenant.

There are many reasons why you may have periods where you are receiving no rental income from your property. Depending on the local market the property may be left vacant for a while while you struggle to find someone to move in. You may need to do maintenance work to the property between tenants again increasing the time the property is not receiving any rent. And of course every landlords worst nightmare, your tenants might stop paying their rent which may mean you go without rental income for a few months while you evict them.

As a general rule most experienced landlords do their financial planning assuming they’ll receive rental income for 9 months out of the year. While you may get lucky and have tenants stay for several years you can equally have tenants move out after every 6 months lease is up. Planning for 3 months unoccupied will hopefully be conservative enough to deal with any rent free periods without causing you financial problems.

Factor in Interest Rates Rising

With interest rates at incredibly low levels it is easy to lose sight of what might happen to your rental business should interest rates begin to rise again. In the 1980’s in the UK interest rates reached over 15%. Could you afford to keep paying your buy to let mortgage if that happened again?

OK so rates probably won’t reach 15% again in a hurry however your variable rate buy to let mortgage could well get 2-5% more expensive in a relatively short period of time. When you are working out the finances on a new buy to let property it is well worth considering what the mortgage repayments would be if interest rates rose by a few percentage points. You can work this out easily by using are mortgage repayment calculator.

Buy To Let Income Is Taxed

If you are going to be making an income profit from your buy to let it is important to realize that your profits will be liable for income tax. Basically that means that you have to pay the government tax on any profit you make from your buy to let.

Taxable Income = Rent received less Interest Paid On Mortgage less Maintenance Expenses

Tax Paid = Net Profit x Your Income Tax Rate

It is worth noting that mortgage interest is a tax deductible expense in the UK. This means that you can offset any payments made as interest on your buy to let mortgage against the profits, before working out your tax bill. In addition any direct maintenance expenses such as wear and tear, decoration, legal fees etc can also be offset against your profits, reducing your tax bill.

If you do not do so already you will need to start submitting a self assessment tax return each year as soon as you start receiving income from your buy to let.

Factor in Maintenance Costs

As mentioned in the point above you should also bear in mind the fact that you will incur maintenance expenses on your property. Hopefully these will not be too excessive, maybe a lick of paint every couple of years, however do not lose sight of these in your financial forecasts.

Also try not to ignore the maintenance needs of your property. If you fail to spend small amount regularly on small jobs, you may find you have bigger problems (and bills) to deal with a few years down the line.

It is a very good idea to plan for larger one off maintenance bills (such as a new roof, new kitchen, new bathroom suite etc) by setting aside a small amount of the monthly profits into a contingency fund you can avoid having to find a substantial amount of money for an unexpected one off expense.