Research the market
Buying a property to let is not something to rush into. Even if you borrow a substantial part of the purchase price of the house it is likely to cost you a considerable amount to set yourself up as a landlord.
Speak to letting agents in the area where you want to buy to find out whether there is demand for rental properties and how much income you can expect.
The agent should be able to tell you about the most popular properties and areas for tenants.
Do your sums
Once you have an idea of the kind of rents you can achieve you can work out how much you can afford to spend. Most lenders will ask that rental income is at least 130 per cent of your monthly mortgage repayments.
This means you can borrow around 77 per cent of the expected income. Once you have an idea of this from an agent you can work out how much you can afford to borrow.
Investigate mortgages
When you have an idea of how much you can afford to repay each month you can start looking at mortgages.
Many lenders will offer mortgages of up to 75 per cent loan to value (LTV) for buy-to-let purchases, but it is possible to borrow as much as 85 per cent LTV.
There are lots of special offers around so you can take advantage of a fixed rate or discount in the early years.
Bear in mind that the rental income may not rise quickly from year to year, so if you choose a discount you need to be sure you can still make the repayments after the special offer has ended, or if rates increase.
Find the right property
With a good idea of how much you can spend and the types of property that are popular with tenants you can start looking for somewhere to buy.
Remember that youre not buying a house to live in yourself so it doesnt matter if the property isnt the type of place you would choose to live in. It is a good idea to look for somewhere easy and cheap to maintain.
Apply for a mortgage
Having found the property you want to buy you need to apply for a mortgage.
This process will be much the same as when you apply for a standard mortgage, but on top of the usual paperwork you may be asked to provide a letter from a letting agent detailing the kind of rental income you can expect.
You may also have to agree to use an agent to manage the property.
Recruit a letting agent
Some lenders insist you use an agent to manage the property; others leave it up to you. For a fee of up to 15 per cent of the gross rental income you can employ an agent to find tenants, check out their references and collect the rent.
The agent should also be able to help you draw up an appropriate tenancy agreement and will help you compile an inventory before you let the property.
Buy the right insurance
As a landlord you will need buildings insurance to cover the structure of the property. Make sure the policy covers buy-to-let properties.
If you are providing furniture or white goods you may want to buy some contents cover. Legal expenses cover is another one to consider it will cover your costs should you need to take a tenant to court.
Sort out your tax position
Rental income is taxable it will be added to your other earnings and is subject to income tax.
However, there are a number of expenses that can be offset against the rent you receive to reduce your tax bill, including letting agency fees, mortgage interest costs and, where the property is furnished and a 10 per cent allowance for wear and tear.
