Investing in a buy-to-let property is a big commitment, but one that pays real dividends - literally. This week we are going to take a look at some of the things one should consider when investing in a rental property, from financing to the type of tenants you are targeting.

When purchasing a buy-to-let property, one has many things to consider. What kind of property? Whereabouts? What kind of tenants to target?

Funding

Firstly, you will need to consider how you are going to finance the new property. The majority of new landlords take out a mortgage on their first buy-to-let property. Most banks offer a mortgage product tailored to the needs of a prospective landlord. Buy-to-let mortgages usually have a lower LTV (loan-to-value), typically around 60%, so you will need to make sure you have a decent deposit available, plus extra to cover the renovation and decorating costs.

Location

The ideal location for your property will depend on the kind of tenants you are targeting, i.e. professionals may prefer a city-centre apartment and young families in the suburbs.

As well as choosing the right location for your target tenant, you need to consider how you’ll manage the property. If you’re doing it yourself, then ideally, you’ll need the property to be close by to avoid having to travel too much. But if you’re planning on using a letting agent, you can look further afield to areas that might have a higher demand for rental property. 

You might consider doing your market research and talking to some estate agents too – they’ll know what’s in demand and could even help you spot a gap in the market. Additionally, websites like Rightmove and Zoopla can give you a good overview of the market.

How much rent to charge?

This is one of the most important decisions you will need to make. You’ll need to charge a rent that at least covers your costs. Consider how much you’ll spend on buy-to-let mortgage payments and other costs, like insurance, repairs and agent’s fees. It’s important to work out what you’ll need to spend each year – and estimate the effect of any periods when the property is vacant. 

However, you also need to consider that you are setting the property at an affordable price for your potential tenants. Seeing what other landlords and agents are charging for various property types in the same area could be helpful too as it will give you an understanding off the general affordability of tenants in the area, ensuring they are always able to pay their rent and still have enough to live on.

Tenants and Type of Accommodation

It can help to focus on a specific type of tenant for your property. Students, families and young professionals each have different requirements for a property, and different needs for its location. If you have the wrong property or location for your target tenants, you could struggle to rent it out successfully.

You also need to consider which upfront costs you are asking for from your tenants. If you are going to charge them a deposit? Or ask them for a guarantor?

Irrelevant of the type of tenant you aim your property at you need to keep in mind that they may need to use a guarantor company such as RentGuarantor to meet your requirements. So, it would also be helpful to research the services available to tenants in this situation and familiarise yourself with how they work.

To conclude, deciding to invest in rental properties is a big decision with a lot to consider. However, if you get it right it could pay off substantially both financially but also psychologically when you know you’ve been part of providing your tenants with their lovely new home. Just ensure you take all these points into account and you can’t go wrong!