ARTICLE: 10 Great Tips for UK Buy-to-let

1. Learn about the business you are involved in
Especially if you are new to buy-to-let deals (and we’re all ‘new’ at some point), you need to get as comfortable as possible about the business you are getting involved in. Expensive mistakes can easily be made, so read up about it and attend recommended courses before you invest. I did read up on the subject before making my first investment, I did not however attend a course but did decide to do this a year later. This was just so I could be comfortable I was not missing anything which could cost me dearly…however I found that just by reading I had got a hold of most of the basics of UK buy-to-let deals and buy-to-let mortgages, so I suppose you could too (but I would recommend people attending good courses on this subject as well).

Make sure you get a balanced view of the subject as there are many publications and articles that have been written with a vested interest in getting you active in the field of UK buy-to-let deals (so they can profit from you!). Do you think these articles will emphasise the risks or just concentrate on the benefits? Well you need to know the risks as well as the benefits so you can take a decision as to whether you want to get involved in UK buy-to-let, and if you do then to what extent?
If you know of someone who has entered the UK buy-to-let market why not ask them if they would mind talking to you about their experiences. Ask them about both their good and bad experiences so you can plan your dealings to take advantage of their experiential learning…it is a conversation that could save you a great deal of money! If you don’t know of anyone directly then ask around and see if anyone else knows anyone else already involved in the UK buy-to-let market. Talk to them about the structure of their investment deals and also what mortgage deals they would recommend and why.

If you can’t find anyone to talk to there is always the internet chat rooms and message boards on this subject, but nothing is as good as a face-to-face chat from someone you can trust and from someone who has no vested interest in you entering the UK buy-to-let market. This means that their views will very likely be unbiased and independent, something you will struggle to find elsewhere except perhaps in trustworthy books on the subject.

However, at the end of all this remember to take professional advice before carrying out any financial transactions. By all means talk to people, but treat all their ‘advice’ on UK buy-to-let as information. This information from their ‘advice’ will help you feel more comfortable with any true professional advice you are given and will therefore help you to make your investment decisions with confidence.

2. Do your sums
Buying an investment property in the UK with a buy-to-let mortgage deal is easy. Buying a good deal is entirely another thing! You have to look out for the good deals and know what you are looking for.

So what is a good deal? Some will tell you it is an investment that has great capital gain potential, others will tell you it is a property what commands a rent that easily covers all outgoings and leaves you with a profit at the end of the year (often termed ‘positive cash flow’ properties). There is much talk and publicity around nowadays that show negative cash flow properties make the largest amount of money when accounting for capital gains. Well this may be true in some cases, but capital gains cannot be guaranteed and you need to be able to support the shortfall in covering all the expenses and mortgage payments on your UK buy-to-let deal, so this is quite a risky business.

As an example, to illustrate how bad things can get, I will tell you about a few of my negative cash-flow properties. Although the company promoting the properties talked about capital appreciation, there has been an oversupply of these city-centre apartments I invested in and capital values have in fact dropped! And dropped quite significantly! This means that I am left paying money out of my own pocket for something that I cannot even sell without suffering a capital loss of around 30% or so. It is a good job that I also have some positive cash flow properties in my UK buy-to-let portfolio to help cushion the blow. As soon as I can off-load these properties without suffering unacceptable losses I will do so.

So that is my experience of negative cash flow investing! I am sure however that if I had been more careful in where I had invested then I could have at least realised a capital gain. This would mean that I could have then sold the properties when I wanted rather than feeling forced to hold on to them to avoid a painful capital loss! So be very careful if you go down this route and be very confident that there will be a capital appreciation over a short period of time, or else risk getting yourself into the painful situation as just described!

Positive cash flow properties on the other hand will bring in a profit each year so you should have no reason to be in a rush to sell these. Typically such properties are at the low end of the market and it is often claimed that such properties do not have the same rate of capital appreciation. However, I have seen some such properties increase in value in percentage terms as much as any other property at the high end of the market. It is down to supply and demand at the end of the day, amongst a few other things affecting capital appreciation.

Whether you go in for positive or negative cash-flow UK buy-to-let deals, you will need to do your sums to make sure you know that you are getting what you are expecting. In the case of positive cash flow you need to be sure you are going to get this as some deals appear to deliver positive cash flow but when you look into all the associated costs you find that this is not actually true. In the case of negative cash flow buy-to-let deals, you need to know that you are able afford to make up the shortfall in paying the mortgage from your own pocket. Some more experienced investors get into negative cash flow investing because they already have a portfolio of positive cash flow properties that will provide the finance required to support the costs. Get into negative cash flow investing too early in your investment ‘career’ and you could be in for a short, sharp, shock; or may be not so short…maybe more like long and painful!

Make sure you account for all the outgoings when calculating whether it will be a positive or negative cash flow property. The things you will need to account for include:
- Mortgage interest on your mortgage deal (also allow for an appreciable increase in interest rates, not just the present rate)
- Void periods for when the rental property provides no income
- Agency charges if you use an agent (this includes so-called tenant placement fees as well as their monthly commission)
- Allowances for maintenance or damage repair
- Service charges that have to be paid to the managing company of apartment blocks if you are buying an apartment
- Periodic ‘refresh’ costs that keep the property in an attractive condition such are repainting and replacing floor coverings every 2 – 3 years.
- Contingency funds for bad tenants who default on rent payments and may also damage your property.
- Re-mortgaging costs every 2 – 3 years to keep you on competitive UK buy-to-let mortgage deals.


So sit down with a pen and paper and write down the cost of the mortgages on the properties you are looking at and the rental income you are likely to get. Then estimate the annual operating expenses and include many of the items as listed above as well as any others that may be appropriate. Total up the costs then take these costs away from the expected rental income to see whether you can afford to take ownership of the property or not. Ideally the rental income should cover all expenses but this is not currently easy to do after the recent increases in property prices. At least you have all the facts in front of you to take a logical decision rather than an emotional decision. Whether you want to take on negative cash flow in the hope of future capital gains is then up to you.


3. Find the best mortgage deal available
Just like you should take your time in finding the right investment property, you should also take time in finding the best mortgage deal. It is not just the property alone that makes a good buy-to-let deal, it is also the mortgage as this represents your single largest item of monthly expenditure associated with the investment property.

To get the best mortgage deal you do not just walk into your nearest bank or building society and ask for a mortgage. They will of course be happy to oblige but it will be very unlikely that they will be able to offer you a good deal. However, many people who do just this when they need a financial product (and this is one of the reasons why banks make many millions in profit!).

You will need to consult with a qualified professional specialist in UK buy-to-let mortgage deals, this usually comes in the form of an IFA that also functions as a buy-to-let mortgage broker. Remember that you can ask their advice without obligation to use their services, so contact a few and see how good a deal they could get you. However, you should know the basics of UK buy-to-let mortgages and be reasonably conversant with the associated terminology in order to get the best out of their advice (read understand what they are saying!).


4. Invest in the right area
Often ‘the right area’ means a place where people would like to live and this can be for a variety of reasons. Reasons may well include the location being in an ideal commuter location, having good public transport links, having good schools for young families, even where the students want to live if you are in the student rental market.

The ‘right area’ for you will also be linked to your target tenant market (see below). Whilst it is hard to say exactly what the right area for you is, you at least must have a target area and that can be as geographically large or small as you like. I have known some people to even just target buying in selected few streets with the objective or owning several or even most properties on those streets! However, the more narrow you make your target area the less deals will come up of course. The main thing is to know where you want to invest so you avoid just buying anything anywhere and making a mistake.


5. Think about your target tenant market
Instead of imagining whether you would like to live in your investment property yourself, put yourself in the shoes of your target tenant. Who are they and what do they want? If they are students, it needs to be easy to clean and comfortable but not luxurious. If they are young professionals it should be modern and stylish but not overbearing. If it is a family they will have plenty of their own belongings and so these will need a more of a blank canvas.

The above goes for decorating and fixtures and fittings, if you are offering the property unfurnished, but also the furniture if you are offering the property furnished. Also try to be as neutral as you can so that the property appeals to a wide range of possible tenants in your target market.

When deciding whether to buy the property or not, you also need to decided whether the property is in the right locality for your target tenant market. If you are quite flexible then maybe you buy the property and then decide how to give it a makeover that will attract the tenant market that is prevalent in that area.

6. Don't set your sights too high, at least not in the short-term!
Stories abound about UK buy-to-let millionaires and their huge property portfolios that they have built from scratch and starting with hardly any money in the bank. However, in most places in the UK the days of high double-digit annual percentage house price increases are gone. This is why many experts are now saying you should invest for income and not short-term capital growth (see discussion above about positive and negative cash flow investing). There are still some people who are advising to invest for capital, not surprisingly this is the people who are selling the high priced properties that do not give positive cash flow from achievable rental income.

Because capital appreciation rates are much slower nowadays, we have to accept that our increase in wealth will not be as sudden as those who invested before prices rose astronomically in the UK after the turn of the century. For more significant increases in capital gain it would be necessary to go further afield to places abroad that are considered as ‘emerging markets’. However, these are not without problems and in many cases carry much higher risks than investing in the UK. For example, the costs involved in purchasing a property can be much higher than in the UK so if you bought a property and then sold it for a similar price soon after, you would stand to lose money unless the value had increased at least as much as the purchase costs (in Germany you can expect to pay 13% of the purchase price in ‘closing costs’!).

I always wish that I had started investing about five years before I did. If I had done this then I could retire today just eight years on for sure and could have probably have retired several years ago. Alas this was not the case, but at least I have made a start now and therefore made my first steps on my way to financial independence. After a little over three years of investing to date, I am not a multi-millionaire and neither should you expect to be. This is not to say that you just might get lucky but I would not say you should expect to be able to achieve millionaire status in such a short space of time. So for me, I see investing in UK buy-to-let property deals as something for the long term nowadays…say at least five to ten years.

7. Consider investing outside your immediate area
Most UK buy-to-let deal investors look for properties near to where they live. This is a good thing to do if your local town or city is a good area to invest in. By this I mean you get reasonable capital appreciation and the rental income can cover most if not all of the running costs and mortgage payments. Knowing the area you are investing in is of great advantage and you should be very careful of investing in an area that you are not familiar (or the risk of making a bad investment is very high). There is also the advantage that the property is close by and therefore you are able to keep an eye on it and even possibly manage it yourself to keep your costs down.

However, if your home town or city is not a good prospect for investment, you should not discount looking further afeild In considering remember that the costs you will have to cover are likely to be higher as you will almost definitely be employing an agent to manage the property for you. As a general rule anything more than an hour’s drive away is a candidate for a managing agent. Some investors would put all their properties out to agencies irrespective of how close by they are but when the properties are further afield there really is little option but to do this. The additional costs will be around 10 –15% of the rental, with occasional special payments when new tenants are taken on for example. You may also decide to pay contactors to do basic maintenance work that you could have easily done yourself if the property was close by, such as painting a wall or replacing a floor covering.


Casting your net wider and looking at other areas in the UK for your buy-to-let deal means you need to do some homework before you invest. Find the right areas that are considered as present of future investment ‘hotspots’. There are many companies offering advice on where to invest but make sure that you also get some independent professional advice on the matter also. When you have found somewhere that you are convinced has a good potential for investment then you need to go and get familiar with the area. Make sure you are aware of what areas as good for investment purposed and know what your target tenant market is then look for suitable buy-to-let properties in that area.

Some experienced investors even buy into deals sight unseen but this is extremely risky if you don’t have significant capital or equity to your name. So leave this for the more wealthy and experienced investors and make sure you go see all properties that you are seriously considering buying. Don’t forget to take professional advice as well which is all the more important if it is not in an area that you are fully familiar with.

8. Negotiate on price
As a UK buy-to-let investor you need to realise that you have the same advantage as a first-time buyer when it comes to negotiating a discount on the deal. Because you are not reliant on selling a property to buy the sellers property, then you are less of a risk as far as the sale falling through goes. This can be a significant advantage when negotiating a significant discount on the deal.

Some seasoned investors will not even consider purchasing a property unless they can get of the order of 15 – 20% discount against present market value. They can achieve this because they find what are called ‘motivated sellers’ (people that need to sell quickly for various reasons). However, beginners should be careful not to let this put them off making their first purchases as it may not be possible to find these deals until a list of useful contacts is built up. I can remember seeing the same person coming out to look at properties when I first started investing in UK buy-to-let deals. After about a year I asked him how his investments were going but he told me he had not yet made any purchases because he thought that people were asking too much for the properties. However, in the year that he made no purchases the property prices would have risen anyway, so just buying something would have made him more money than buying nothing, even if he could not find the properties at what he thought was the right price.

Even if the prices that properties are being marketed at seem too high, you can always make a lower offer. A technique of seasoned investors is to make low or ‘cheeky’ offers on many properties knowing full well that many of their offers will be flatly refused, but then occasionally getting a bargain makes it all worthwhile. This works much better in a flat or declining market of course than if the market is rising as there are less buyers to compete with.

Finding our why someone is selling a property will help you to gauge whether you are likely to succeed in getting a significant reduction in price. You need to find out if anything could be motivating them to make a quick sale. Examples would be such things as imminent repossession, matrimonial separation, and relocation.

9. Be aware of the risks
Before you make any investment you should fully investigate all the downsides before deciding to take risk of investing. It is a dangerous thing to just plough ahead regardless and bury your head in the sand when it comes to the possible downsides. To be forewarned is to be forearmed as they say, so being aware of the possible downsides will help you to prepare for managing a bad situation as and when it arises. It may be that after acquainting yourself with some specific risks, you decide to change your investment strategy to avoid those risks altogether.

The risks associated with investing may will be affected by the chosen area and chosen buy-to-let properties. However, some are more general and these include the risk of the property being empty, the risk of serious damage including damage from the floods as we have seen recently if the property is in such a risk area, the risk of a serious defect either being found or developed after purchase that would affect future resale.


10. Decide if you want to be a hands-on or an armchair investor
Agreeing on a deal, raising the UK buy-to-let mortgage, and then having the conveyancy carried out is only a small first step in owning a property. When you rent it out either you can manage all this process yourself or get an agent to do it for you. Agents will charge you a management fee, but have the knowledge to effectively deal with the required documentation and regulations as well as sorting any problems out if things go wrong. You can make more money by renting the property out yourself but you need to know what you are doing first to meet legal obligations and be prepared to give up some of your own time that will be spent on viewings, problems and arranging or carrying out repairs.
As the costs differ between the two approaches it is important that you account for the additional costs if you are going to use an agency. This is so you know that you are sure you can afford it. Some experienced investors do not worry too much about whether the agency fees and other costs are fully covered by the rental income. This is because they are investing below market value and in areas where there is a significant capital appreciation predicted so any shortfalls in funding can be met by future re-mortgaging of the property against the increase in value. This can however be a dangerous approach for people just starting out in property and if things don’t work out as intended.

The Buy-to-Let Blogger
Advice on UK Buy-to-Let, Buy-to-Let Deals, and Buy-to-Let Mortgages
(Our only true advice is that you should always take professional advice before investing, treat any 'advice' on this Blog purely as information and not a substitute for professional advice.)