10 tips for buy-to-let investors

In the early 1990s, maths teachers Judith and Fergus Wilson bought a buy-to-let property.

Since then they have bought over 1,000 more, made over £180 million and are expected to pocket a further £200 million from the sale of their portfolio after listing all their properties earlier this year.

They went from teachers to the Sunday Times Rich List in a little over ten years through buy-to-let investing and have inspired thousands of others to become landlords.

So, if you are thinking about starting your own buy-to-let empire what do you need to know? Here are 10 tips to help you on your way.

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1. Knowledge is power

As with any investment the key to success in buy-to-let is understanding the market and how to get the most from it. Before you start buying properties do some reading so that you understand why buy-to-let works as an investment, what the risks are and what you need to be on top of in order to make a success of it.

Also, try to speak to someone who already has buy-to-let investments and listen to their advice.

2. Set yourself goals

Don't treat your investment like Monopoly. It isn't about wading in, buying lots of houses then sitting back and waiting for the money to roll in. You need to treat it like a business venture and make a clear plan with short and long-term aims.

First up are you aiming for capital growth or income? In an ideal world you will achieve both, but you cannot predict the housing market so it is better to target income. Then set yourself a realistic yield to aim for. This will help you choose where and what to buy.

For example, if you decide you want a 5% yield and buy a £200,000 house. It will need to bring in £10,000 a year to achieve that income.

3. Understand the maths

A common mistake made by many buy-to-let investors is to mess up the maths and end up with a property that's rental income only just covers the costs. This would leave you with no profit and reliant on rising house prices to keep your investment afloat.

Avoid this by drawing up a clear breakdown of all the costs involved in renting out a property including maintenance costs, insurance, management fees, and mortgage payments. All of a sudden that £200,000 property needs to be earning a lot more than £10,000 a year if you are going to receive a 5% yield.

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4. Get help choosing a mortgage

If you are going to need a mortgage in order to realise your landlord dreams be careful where you apply. Buy-to-let mortgages are a specialist area and that means the mainstream high street lenders don't tend to offer the best deals.

A mortgage broker can earn their weight in gold here as they will know all the small lenders who could offer a much better deal. Remember, the lower the interest rate the higher your profits.

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5. Location, location, location

Most buy-to-let investors choose to buy properties that are local to them. This seems sensible as you know the area, can keep an eye on your investments and may not need to pay for a management company. But, you may be limiting your investment returns. This is because some parts of the countries offer far better rental yields than others. For example, yields in London are small due to property prices and the fact it is a very competitive rental market.

Research from HSBC found that London typically offers some of the lowest yields in the country of 3% - 4%. In contrast places such as Southampton, Manchester and Nottingham offered average yields of 8%. So, buy properties in those areas and yes, you will need to use a managing agent but you'll get a much better income.

6. Pick a property wisely

Another common mistake made by wannabe landlords is to buy the wrong types of properties. When you are ready to start shopping think in terms of investment potential rather than whether you would want to live there. New build properties are a good choice as they will require minimal maintenance costs. Also, stick to one or two-bedroom flats or houses as most desirable tenants are young professionals looking for starter places to rent while they save up their own deposits.

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7. Drive a hard bargain

When you have found the right investment property think carefully about your offer. You are likely to be in a very strong position as you probably don't need to sell anywhere to fund the purchase and can therefore progress with the sale quickly. Keep this in mind when deciding on your offer. The less you pay at this stage the better the start for your investment.

8. Select your tenants carefully

Once you have done the hard work and bought a property don't cut corners when choosing tenants. Make sure you vet them, check their credit history, keep an inventory of items in the property, and regularly inspect the property.

9. Protect your investment

Skimping on insurance could end up wiping out sizeable chunks of your income if there are any problems with your property. Make sure you take out specialist landlord insurance that covers the building and anything you have put in it.

10. Specialise in spreadsheets

Once your tenants are in and the rent starts rolling in make sure you keep detailed records of income and expenditure. Detail here can help you save money as you'll find submitting your tax returns easier and a comprehensive list of your expenses will help you take advantage of the range of tax breaks available to landlords.

The first year you file accounts it may be worth paying for an accountant to make sure you get everything right and don't pay a penny more tax than you have to.

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