Property investment for beginners: Buying your first rental property

Diving into property investment is an exciting time and marks the start of a thrilling adventure. The first steps seem daunting for a newbie, so this property investment for beginners guide will provide a practical foundation by explaining how to start buying rental properties.

The article will walk readers through the key steps in purchasing their first buy-to-let property, from deciding on the property type and location, securing finance and understanding the legal requirements. We’ll also talk about rental yields so you know how to make money from being a landlord.

There’s a lot to learn when you’re just starting as a landlord, but this guide will help you embark on the journey with confidence.

Property investment for beginners: The first steps

Firstly, beginners need to decide on what type of property they want to purchase. This can make a big difference in the short and long term.

New or old property?

A new property might cost more to purchase, but subsequently (in all likelihood) has lower maintenance and repair costs and efforts. An older property might cost slightly less to buy, but the maintenance and repair costs are likely to be higher. It is also likely to need a lot more attention.

HMO property or a standard property?

When researching how to start buying rental properties, you might come across terms such as Houses in Multiple Occupation (HMOs). A HMO is a property rented out by at least three people who are not from one ‘household’ (like a family) but share facilities such as the bathroom and kitchen.

If you want to know how to make money from being a landlord and do it quickly, this could be a good option due to the typically higher rental yield. However, there are some drawbacks. Often, HMOs require a significant upfront financial investment and can be more labour-intensive compared to standard properties. The rules and regulations can also be more complex and often change.

The location of the property

Different areas of the United Kingdom have different average rental yields. Of course, having the property located near you is helpful for easy access and familiarity with the local area, but other areas of the country could offer higher rental yields. 

This part of property investment for beginners can be confusing, so we have put together a series of area guides to help you understand how rental yield works in different areas in the UK. We will also discuss how it works in a bit more detail below. 

Property investment for beginners: Securing finance

Knowing what type of property you want for your investment is only the first step. Securing the finance for your ideal property is even more important. This part of property investment covers some obvious points, such as the deposit for the mortgage. But there are also some costs involved that you might not have thought of before. Financial aspects for property investment beginners to think about include;

• Landlord insurance
• Mortgage deposit and repayments
• Stamp duty
• Solicitor fees
• Conveyancing and legal fees
• Potentially furnishing the property
• Income tax
• Council tax
• Property maintenance and repairs

This is a big part of understanding how to make money from being a landlord. Knowing the outgoings will help you roughly calculate how to price the rent and whether or not it will be worth it.

Property investment for beginners: Calculating rental yield 

Rental yield is a percentage figure showing the revenue you earn or can expect from an investment. Landlords and property investors use rental yield to measure the value of their investments and determine the return on their capital outlay. This will help you know how you’ll make money from being a landlord.

To calculate the rental yield, take the monthly rental income amount or expected rental income and multiply it by 12. Divide it by the property’s purchase price or current market value and multiply this figure by 100 to get the percentage. 

For example, your monthly rental income is £1500. Your annual rental income is £18,000 (£1,500 x 12). You purchased the property for £200,000. Your rental yield is 9% (£18,000 ÷ £200,000 x 100).

Understanding the legal requirements

Property investment for beginners can seem daunting because of the legal requirements. While there are quite a few hurdles to jump over after purchasing the property, once you have experience with the regulations, it will seem a lot easier. 

Creating a tenancy agreement is a good way to keep track of this. A tenancy agreement lists the tenant’s and landlord’s responsibilities and is agreed upon by both parties at the start of the tenancy. There are a few key regulations that you should get to grips with.

Keeping a safe and habitable property

The property you rent out must always be fit for human habitation. To ensure this is the case, you will need to abide by specific safety regulations such as fire regulations, PAT testing and take the Fitness for Human Habitation Act into account.

Protecting deposits in a government-approved scheme

You don’t have to take a deposit, but virtually every landlord does because it provides a financial safety net. Landlords must keep this in a government-approved scheme. If you need to deduct some deposit at the end of the tenancy, then you must provide evidence that the tenant has caused damage to the property. 

Electrical performance certificate

You’ll need to ensure that your property is as energy-efficient as possible. The Minimum Energy Efficiency Standards (MEES) rules state landlords need to ensure all new tenancies achieve an EPC rating of C or above by December 31, 2025.

Gas and electrical safety

You should give a copy of the certificate to the tenant(s) before the tenancy starts and ensure this is updated annually. You also need to complete an EICR every five years. This stands for ‘Electrical Installation Condition Report‘. 

Ensuring your tenant has the right to rent

When finding a tenant, you will need to carry out tenant screening. Part of this is ensuring your tenant has the right to rent under section 22 of the Immigration Act 2014.

Consider landlord insurance

Now you know how to start buying a rental property, it’s time to consider landlord insurance. Landlord insurance is not mandatory but strongly recommended, and you will struggle without it. This is even more the case for property investment beginners. Most mortgage lenders will not agree to lend money without landlord insurance because they want to see some level of protection themselves.

Landlord insurance is really important for any landlord. It will help to safeguard your financial future. It gives you the peace of mind that situations out of your control will be covered under your policy. Without insurance, the landlord would have to pay for repairs or replacement of damaged property out of their pocket, which could be a significant financial burden. 

We have the expertise to find the best landlord insurance deals that are suitable for your needs as a landlord. Contact us today at 01788 818 670 for a quote, and don’t forget to visit our resource centre for more information on how to be a successful landlord.