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Is buy to let a wise investment? Risks and rewards of buy to let

What are the risks and rewards of a buy-to-let investment?

Thinking about investing in a buy-to-let property? Start with our checklist of risks and rewards that come with being a landlord.

Buying property to let is one of the most common investments that people make. But, is it still a reliable way to give yourself an extra income?

For some, it has been. Investing in property has allowed them to give up their day job and earn a substantial income from a property portfolio. However, for others, it's not worked out, and it's left people struggling to pay their own mortgages.

The reality is that many factors can make the difference between success and failure. As ever, the devil is in the detail.

For instance, the tax rules around buy-to-let often change. These changes may work in your favour, or leave you a little worse off. Health and safety standards are always increasing, which can also add to a landlord's outlay.

In this article, we take a look at five ways that may help you find success, and the five most common reasons why some people fail with their buy-to-let plans.

The top five points that can lead to buy-to-let success

Take these key points into consideration, and you could find yourself with a very successful return on your investment. Here are our top five tips to help make your buy-to-let experience a success.

  • Know your financial objectives

    As a landlord it's important to know your financial objectives. After all, you need to protect your income as well as your property. With that in mind, here are some things you should take into consideration.

    Loss of rent insurance

    Even with the best planning, you may be in a situation where your tenants have to move out, and that means you could face the cost of rehousing them if your property becomes uninhabitable. Loss of rent insurance allows you to claim back lost income if this happens due to an insured event, like a fire or flood.

    Expected return on investment

    It's also important to think about what you're hoping to earn from your buy-to-let and your expected return on investment. The reality is you can earn a modest income from buy-to-let property, but do you have a fallback? According to SevenCapital, the average UK rental yield sits at 3.63%, but they can change from postcode to postcode. So it's crucial to stay up-to-speed on investment locations so you know what a good return on investment is.

    Single or multiple property?

    Are you looking to rent a single property or multiple? Selecting the right rental property can be tricky. If you can afford it, investing in more than one can mean you will earn multiple incomes from the rent of each property, which you can use to pay down the mortgage, ultimately spreading the risk. But that's only if you can rent all of them out. If you can't, can you afford to finance it? With multiple properties, you may find that one property outperforms the others. You can then use the income as a financial buffer. This isn't the case if you go down the single property buy-to-let option, but a single let is particularly good if you're looking for a lower maintenance and simpler investment.

    Before making your decision, take a close look at your finances and objectives. It may also be worth discussing your options with a financial advisor, which is our second recommendation for buy-to-let success.

  • Many people believe property is an easy way to invest as it doesn't need the same detailed research and advice as investing in stocks and shares. This isn't the case. Investing in buy-to-let property can have a major impact on your financial affairs and tax circumstances, so it may be worth speaking with an Independent financial advisor. They can save you time, trouble and misunderstanding, leaving you free to research the market and opportunities.

  • Support from experts

    Buying a property involves many specialists, and it's the same with buy-to-let. If anything, you may need to deal with even more, including:

    Mortgage advisors

    Whether repayment or interest-only, mortgage criteria for buy-to-let is different as it's based on projected rental income, not your salary.

    Letting or estate agents

    Finding the right tenants can be time-consuming. You could use an agent for this, but you'll need to consider the costs. And even this route needs a little research to find the right agent. For more information and advice, check out our landlord's guide to attracting and keeping the best tenants.

    Property management specialists

    Even if you love DIY, you'll need qualified specialists for some jobs, like boiler servicing and repairs. A property management agency can handle all this for you, for a fee. Some estate and letting agents have their own management services, which can work out cheaper.

    Legal experts

    Unless you're a property legal expert, you'll definitely need to seek advice to navigate the many ever-changing laws, rules and regulations.

  • There are many laws, and a maze of hundreds of rules and regulations, to help people buy and let property safely. There's also an extensive checklist of obligations and responsibilities for landlords, covering everything from utilities to furnishing, property maintenance, deposits, tax and more. It's essential that you're familiar with them, or that you hire a specialist solicitor who is, as you can be heavily fined if you're not compliant.

  • It may seem strange to think about an exit strategy before you've even bought a property to let. But, without one, you run the risk of negating potential returns, or even finding yourself with less than your original investment. Talk to a financial advisor about your exit strategy as there are various ones to consider.

The top five reasons for buy-to-let failures

These are the most common mistakes that people make when looking to invest in property. Take note, and avoid some of the pitfalls.

  • Acting without advice

    A surprising number of people decide to invest in a property without seeking professional advice, hoping the property will let out for the amount they want. This may not be the case. Plus, property value can add a tremendous amount of wealth to your portfolio - and without proper advice, it can lead to costly tax issues.

  • Not financing or protecting a property against the risks of buy-to-let, either with the right mortgage or insurance, has left people facing all kinds of unexpected problems. Make sure you consider all the risks, from structural issues, the potential for flooding, subsidence, and issues arising from problem tenants. Visit our buy-to-let insurance page for more information on the different types of cover available to you.

  • Not seeking professional advice

    Letting a property yourself without consulting legal, and health and safety experts is an absolute no-no. It can lead to hefty fines, sometimes totalling tens of thousands, because you've failed to let to a tenant safely and legally.

  • A maintenance schedule is essential if you're thinking of buying to let. As it's a long-term commitment, you may need to pay for a new boiler, windows or even a new roof. A well-planned maintenance schedule can protect you from unexpected shocks.

  • Buying to let is a serious, long-term commitment. And it's not just a financial investment: you'll need to spend time understanding the financial and legal implications, finding trusted professionals, the right mortgage and insurance products, and, of course, the right tenants.

Is Buy-to-Let the right way for you?

With ever-changing tax liabilities, plus many laws, rules and regulations, buying to let may seem like a really complex way to invest.

But, by investing time to learn about the market, and with a team of experts to advise you, it can still be an attractive option to bring in some extra income.

However, it's not a get-rich-quick scheme. Patience, a flexible attitude, and a rainy-day fund for any emergencies can help you be prepared and reduce the risks around buying to let.

Our Landlord Knowledge Centre features a number of helpful articles on being a landlord. From the insurance you need, to using a letting agent, and even the latest changes to rules and legislation.

Landlord Insurance Buy to Let Show Kate Faulkner
Kate Faulkner

Kate Faulkner
Last Updated: 30 Nov 2022
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