Buying Rental Property: A Rental Property Investment Guide (UK)

If you have already decided on investing in rental properties but are unsure how to do that in the UK, we will guide you. 

By dealing with hundreds of investors, we are familiar with some basic challenges, such as funding options, deciding on the best investment strategy, choosing the right property, sourcing tenants, and managing an investment property. Are you facing some other challenges?

This guide gives you an overview of how to buy a rental property in the UK and maximize your return on investment. 

Buying a house and renting it out for investment purposes 

Buying a house and renting it out in the UK is a great way to use your investment property to earn additional or passive income. The two best ways to make money from such properties are:

• Rental income: The rent you collect from the tenants living in your property is your rental income. It forms a consistent stream of passive income every month.
• Earn from capital appreciation: Properties often see price growth over time. You can make a huge profit from it by selling your property after the price has considerably risen. 

Thus, you have two ways to earn a good income from one investment. One gives you regular pay, and after a while, when you sell it, you get a large payout. 

What is buy to let or buy to serviced accommodation?

Buy to let or buy to serviced accommodation are properties purchased in the UK for the purpose of renting them out. These are usually used as short-term rentals that target people for temporary stays, tourists, and business travelers. The primary focus is to generate higher rental yields than traditional long-term rentals due to premium nightly staying rates. 

👉 Check out our Buy to services accommodation service for UK.

What is rent to serviced accommodation?

Rent to serviced accommodation refers to renting properties from landowners and converting them into short-term rentals. Unlike buy-to-rent properties, you don’t have the flexibility and control over using them for rental purposes. The landowner provides you with fully furnished accommodation, and you are liable to return the property in the same condition at the end of the tenancy. You also need to pay a fixed rent to the landowner monthly, even when you might have extended vacant periods. 

👉 Check out our Rent to serviced accommodation service in the UK.

How to buy a rental property?

Here are 5 steps to buying rental property in the UK in 2024.

Step 1: Identify your investment goals 

Before you invest in a rental property, you need to determine your investment goals. It will help you shape your overall investment strategy and make better property choices. 

Here are a few things you need to consider 

• Decide on your level of involvement: Would you be a landlord or prefer a passive investment approach? It will help you identify which property to invest in and how much time you need to commit to such investments. 
• Determine whether to invest alone or in partnerships: If you invest alone, you can keep all the profits to yourself but bear all the risks. Partners can fund together and share risks, but profit gets divided.
• Focus on your goals: Is this a new career, a passive income source, or a goal to build a good property portfolio? Your answer will help you set clear and achievable goals for maximum rental yield, capital appreciation, or portfolio diversification and growth. 

Step 2: Consider the financial side

Once you have your goals set, now determine how to fund your property investment. The purchase price of a property is already high in the UK. Along with that, there are several other costs that you need to consider.

Here are a few associated costs of buy-to-let investments 

• SDLT: It is applicable on all properties worth over £250,000. 

For £250,001 to £925,000: 5%

For £925,001 to £1.5 million: 10%

Above £1.5 million: 12%

These charges apply if you have only one residential property. You need to pay an additional 3% for your second home or investment property. Calculate your SDLT rate before investing in properties. 

• Building surveyor’s fee: They are regulated by the Royal Institution of Chartered Surveyors, who focus on valuing properties. Hiring them may cost you around £150 and £450
• Legal fees: If you require a solicitor to smoothen the entire process, they will charge you between £600 and £1500. However, this rate may vary depending on the complexity of the transaction.
• Buying insurance: Insurance is a legal requirement for landlords. If you apply for a mortgage, you need building insurance that costs around £150-£200. Landlord’s insurance, costing £130-£150, protects you against accidental or deliberate damage.
• Safety Certifications: It will cost you about £620-£1,360 to get all the necessary certifications and become fully compliant with the legal requirements in the UK. It includes smoke alarms, heat detectors, EICR, gas safety checks, PAT safety, and Legionella risk assessment. 
• Property refurbishment: It costs around £4,500 – £14,900 depending on the type of refurbishments you choose for your property.
• Professional property service agency fees: If you have less time to invest in sourcing, managing, and finding reliable tenants, you can pay a small fee for agencies like us to assist you with everything.

If you have sufficient cash in the bank, you can invest it in a buy-to-let property and keep all the profits to yourself.

However, the most popular way of raising funds for property investment is to borrow from a bank or a funder. They can lend you a proportion of the property purchase price, which can be between 50% and 60% for premier properties.

There are multiple other ways to raise capital for property investment. Learn them from our guide on How to Raise Capital For Real Estate & Property Investment. 

But before deciding on how to fund your buy-to-let property, here are a few things you need to do

• Pay off all high-interest personal debts like credit card loans
• Set up an emergency fund to stay prepared for worst cases

👉 Learn everything about Buy to let mortgages and whether rent to rent is legal in the UK or not.

Step 3: Choose the right property 

The main target of investing in a buy-to-let property in the UK is to make maximum returns. It is possible only when the property is located in a prime location, such as Manchester, Leeds, Birmingham, or London.

Here are a few factors to consider while purchasing a buy-to-let property 

• Type of tenant you want: Identify who you are targeting, like students and young professionals. Sometimes, you can rent your property to tenants who further use your property as short-term rentals for tourists, business travelers, and others looking for short-term stays in the UK. Knowing your target audience helps you close the property location. 
• What kind of property to purchase: There are various property choices for buy-to-let investments, and each offers unique opportunities. These include private buy-to-let properties, short-term rentals, student accommodation, social housing, holiday lets, and HMOs.  
• Choose between freehold and leasehold property: A freehold property is the one where you own the land where the building is constructed. However, leasehold properties refer to signing -term leases for the land while you buy the property. 
• Choose between new-build and older properties: Older properties have more bedrooms, which is suitable for families, while new buildings are more energy efficient, which is appealing to young professionals looking to save money on utility bills. 

Also, new-build properties require minimal repair and maintenance costs and use modern materials, which makes them a cheap investment with the potential to attract more tenants. Similarly, older properties can be affordable, but you need to be prepared for higher regular costs like extensive renovations and timely repairs.

Other important considerations while choosing the right rental property include:

• Location: Choose properties in areas with high rental demands and are located in major cities to attract a wide variety of tenants.
• Rental yields: Calculate the area’s standard rental yield to understand the annual return on your investment. An average rental is between 4% and 5%, and 6% or above ensures better returns.
• Affordability: Find properties that are affordable for you to make higher returns. For example, you can choose properties in the northern cities of England like Manchester and Liverpool. They have lower property prices, but the rental yields are high. 

Step 4: Complete the purchase process 

Conducting due diligence is essential when investing in a property. It includes inspecting the roof, reviewing the floor plan, and checking safety certificates and home reports. You must also arrange dates to view the property physically. 

Then, consider valuation advice and investigate the land title for full details on the property. After you are assured of the property, you can make an offer, negotiate prices and terms, exchange contracts, and complete the buying process.

Step 5: Preparing and furnishing the property 

Once you purchase a property, the next step is to prepare it for rental. You can add extra rooms or spaces, add modern furniture, renovate flooring and paint, etc. All of these can be costly, and you can use bridging loans.

Other essential tasks include

• Getting all the necessary certificates 
• Marketing properties on different platforms 
• Finding and managing reliable tenants 
• Manage the property regularly 

How to get into rental properties for maximum return?

Rental income is the basic source of revenue for buy-to-let property investment, and the return on your investment is the profitability amount that remains after subtracting all your expenses from the net income. Here are a few ways how to get into rental properties for maximum returns. 

1. Find out which cities have maximum rental yields.

Whenever you choose a property, make sure it is located in an area with high rental demand. Manchester, Birmingham, and Leeds have the highest rental yields. 

2. Check if the location has the potential for capital appreciation 

It is essential to choose a location that has the potential for capital appreciation, such that you can sell the property at higher prices than its buying costs. For the long-term plan, you can use a property for rental purposes and then sell it when the price rises over time.

3. How good is the transportation facility 

The rental demand for a property increases when the transportation network in the area develops. For example, a property located near airports and railway stations will always have higher demands because no one loves the hassle of commuting to work. 

4. Think about the facilities. 

While looking for higher investment returns, you must consider the facilities you can provide to tenants. The availability of amenities, market complexes, shopping malls, eateries, playgrounds, etc., impacts the rental demand for your property.

5. Decide on the tenant profile. 

The type of property you buy must depend on the tenant profiles you are targeting. For example, if you are targeting young professionals, you must choose properties located near business hubs. Similarly, a flat in a university area will attract students, while a family-sized house near schools is suitable for long-term tenants with children. 

👉 Learn everything about HMO investment, its pros, cons, and expected investment ROI.

6. Choose sustainability 

Sustainably leaving is becoming popular, which means you need to focus on energy-efficient practices within your rental property. It not only saves you money on utility bills but also protects the environment from harmful gases. Improving insulation and making green changes can improve the property’s appeal to young professionals. 

7. Refurbish the property to attract tenants.

You can increase property rents only by providing better facilities to your tenants. This includes focusing on refurbishing the property, adding extra features, and buying new furniture. 

8. Avoid extended vacant periods. 

Don’t keep your property vacant for longer periods, as this can negatively impact your rental yield. Always ask current tenants about their plans at the end of the tenancy so that you can prepare early and start advertising for new occupants quickly.

9. Review the rent policy regularly. 

To maximize returns, you need to increase your property rents over time. However, make sure you research the market properly to understand the current property prices. If required, you may lower the rent to keep up with the market and avoid longer vacant periods. 

10. Hire a professional property service agency. 

If you are looking for maximum returns and a hassle-free investment, it is good to connect with us. A professional property service agency does everything from finding properties in good locations and higher rental yields to finding tenants and managing day-to-day activities. 

Rental property investment guidelines in the UK

The UK provides attractive opportunities for UK-based rental property investors and overseas investors. If you are buying a property, you must register it with The Land Registry in the UK. 

Every land has a separate title number on the public register, which provides people information about the extent of land, the owner’s identity, the title, benefits enjoyed by the land, burdens attached to it, details on leases (if any), and any financial charge affecting the property. 

You must get an EPC, or Energy Performance Certificate, for your property, which provides details about its energy efficiency. An accredited assessor prepares the certificate after assessing your building and measuring its construction and services, such as its insulation, radiators, glazing, etc.

You need planning permission from your relevant local planning authority (LPA) for any changes or development of the land. 

You must comply with various health and safety guidelines. It includes installing smoke alarms on each floor of your property, adding carbon monoxide detectors in rooms with solid-fuel-burning appliances, and getting a gas safety record. 

Landlords of private rental accommodations need to conduct Right to Rent checks for their new tenancy agreements. These checks determine whether tenants aged 18 or over have the legal right to live in the UK. 

You also need to register a tenant’s deposit with a Tenancy Deposit Scheme. It protects tenants’ money and can assist in resolving any disputes at the end of the tenancy. 

Is buy to let worth it in 2024? 

Yes, buy-to-let will be worth it in 2024. According to a report from Statista, the UK has the highest percentage of the population living in rental homes of any European country.

The residential rental rate is expected to rise by almost 18% until 2028, and the growth curve is seen rising from this year. Reports say the rise in rents is majorly due to homeowner affordability. Purchasing a home is affordable in the UK, and rents are high, which makes buy-to-rent investments worth it in 2024. 

How much tax do you pay on a buy-to-let?

You pay stamp duty land tax for all properties worth over £250,000. 

• For properties worth £250,001 to £925,000, you pay 5% tax
• For properties worth£925,001 to £1.5 million, you pay 10% tax, and 
• If you have more than £1.5 million in property worth, you pay a 12% tax.

These charges apply if you have only one residential property and pay an additional 3% for your second home or investment property.

Additionally, you need to pay income tax on your taxable rental income, which is 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers.

If you sell the property further, you need to pay Capital Gains Tax, which is 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. 

Here, we have covered how to avoid inheritance tax on property in the UK.

Find the best Buy to Let deals in the UK with Pluxa Property

If finding the best buy-to-let properties is your major concern, Pluxa Property is there to support you. 

Our expert team has knowledge of UK property regulations and all the ins and outs of this industry from our long experience working with property investors. We research the market thoroughly to find the best properties before your competitors. 

We can discuss with you a suitable investment strategy and how you can maximize your return on investment. From sourcing property, negotiating deals, and preparing or renovating properties to sourcing tenants, performing day-to-day activities, and managing the property, we do it all. 

Contact our property investment experts.