Could you be a buy-to-let landlord?

Young couple buying or renting a home or apartment, they are meeting the owner or real estate broker who has the keys; FOCUS on

If you've ever rented a property, you could be forgiven for thinking that becoming a landlord is a ticket to wealth: just sit back and watch the money pour in.

And with rental values higher than they've ever been, there's some truth to this view. Figures compiled by peer-to-peer lending company LendInvest earlier this month revealed that the average yield on a one-bedroom property is 5.9%, for two beds it's 5.3%, three beds is 4.7% and four beds is 4%.

These figures look pretty good compared with other investments; and rocketing house prices mean there's usually a significant capital gain too.

Compare mortgage rates

As a result, more and more people are looking to become landlords. The latest figures from the Council of Mortgage Lenders show there were 18,200 buy to let loans in March - up 12% on the previous month and 21% higher than in March 2014.

And this is only set to continue. Over-55s are now able to access their pension pots, and seven percent of people planning to do so say it's in order to become buy-to-let landlords.

Meanwhile, the election of a Conservative government looks to be good news for buy-to-let landlords. A mansion tax and rent controls are out, and property prices look set to keep rising. Meanwhile, the tax breaks available to landlords - the ability to offset their tax bill with expenses from mortgage interest to furniture - are set to continue. Meanwhile, building societies are increasing their buy-to-let offerings.

But where do you start? We offer our top tips.

Compare mortgage rates

Research demand and aim to meet buyers' needs

As we've seen, the best average yields come from one- and two-bedroom properties. This, though, won't be the case everywhere. In university cities, for example, there's often more money to be made from buying a larger house and letting it to groups of students. In London, conversely, studio and one-bedroom flats can provide excellent returns.

If looking to let to young professionals, aim for a property with equal-sized bedrooms; if your target market's a family, a large kitchen may be more important. Either way, the more bathrooms the better.

Don't buy for yourself

Following on from this, it's important to focus on what your tenants want, rather than what you like yourself. You may find that large garden charming; most tenants would rather not have to bother.

Consider specialising

Some landlords do very nicely by specialising in, say, HMOs - housses in multiple occupancy - and letting each room out individually. Others focus on short-term lets, tenants on benefits, or luxury properties where the rent may be paid by the tenant's employer.

Make improvements

It's often possible to subdivide rooms, and, when letting to students in particular, this can be a way to maximise income. Alternatively, if you're aiming to let to a pair of professionals, a second bathroom can make a property far more lettable. However, be wary of major projects: these can mean long periods with no rent coming in, as well as high costs.

Make sure the place looks clean and smart: a small outlay here can really pay off in the long term.

Do your sums

Don't gamble on rising prices: many buy-to-let investors got caught out that way during the last property crash. If the property can't wash its face in terms of rental, forget it. And remember that when you do sell, there will be capital gains tax to pay.

When calculating your likely profit, don't forget to factor in the possibility of interest rate rises, and don't forget to allow for voids - periods between tenants - and maintenance costs, which are likely to be much higher than those for an owner-occupier.

Don't forget initial costs

You'll need to cover the costs of buying, which can include solicitor's fees, stamp duty and survey fees. It's also likely to take a few weeks to get the property sorted out and let, during which time you may be paying sa mortgate without receiving any rent.

Shop around for a mortgage

There's a wide variety of buy-to-let mortgages available - and following the election, several providers have launched new offerings. But there's a wide variation in the rates offered, and some have fees of as much as £2,000 - although these fees can be offset against tax.

Decide who will manage the property

Most buy-to-let landlords manage the property themselves - lettings agents aren't cheap, and using one can wiipe out a lot of the profit.

But if you're managing the property yourself, there's a number of things you'll have to sort out. There are a number of agencies that can carry out credit searches, such as the Residential Landlords Association.

You'll need to complete a very careful inventory, covering every item, and detailing the condition it's in; many landlords even record the serial number of items such as washing machines and televisions.

Furnished or unfurnished?

Whether or not you should offer the property furnished or unfurnished will depend very much on your target market. Tenants of one-bedroom flats are usually young and will want everything to be provided; those looking for family homes may well have things of their own. If you do furnish, spending a llittle more will often pay dividends.

Comply with the law

All furniture will need to comply with fire regulations and, from October, all properties will need working smoke and carbon monoxide alarms. HMOs need fire alarms and fire extinguishers. You'll need an annual inspection of gas supply and gas appliances and an electrical safety check before tenants arrive.

You'll also need to take part in the Tenancy Deposit Scheme, keeping the tenants' money safe and returning it if they keep to their side of the deal and don't cause any damage.

Make sure you've got the correct insurance; recently, Saga refused to pay out on a £56,000 claim because the owner hadn't taken out a landlord policy.

10 property hotspots
See Gallery
Could you be a buy-to-let landlord?

In Scotland, Edinburgh is seen as a city with huge growth potential. In 2014, prices in Edinburgh were up 10% in a post referendum boom that shows little sign of slowing down.

Local agents are not expecting quite such stellar growth for the next 12 months, but they think price rises will be well above the average predicted for the whole country.

Rightmove named this as the area where it expects house prices to grow the most over the next five years. It says that over this period there will be a huge number of people moving out of London in order to afford to get onto the property ladder. They want a reasonable commute combined with plenty of attractions in the local area, and Southampton offers all this. With relatively affordable housing stock, it's a prime candidate for growth.

Luton was Rightmove's candidate for the second biggest house price rises over the next five years. It emphasised that this isn't a mater of opinion, it is the result of crunching the data.

Luton is another major beneficiary of the move out of London, and while it is arguably not as attractive a place to live as Southampton, it's only 23 minutes into central London - which rivals some of inner London's commuter times. With average prices of £179,368, it's clearly a far more affordable option, and the area has already started to show signs of a boom.

This was the third area suggested by Rightmove. As with Southampton, it is well positioned for London commuters, and also has huge local attractions.

A survey last year asked young professionals to name the place they would most like to live, and Brighton and Hove were the only areas that appeared on the list outside London.

One of the reasons it's not higher up the list is that houses are already on the pricey side, with an average cost of £338,956 - up 13% in the past year alone.

There may be few people who grow up with the dream of living in Swindon, but the electrification of the rail line to London will bring travel times down across the West Country, so Swindon becomes part of the outer commuter area.

Given that the average property costs £168, 968, it's easy to see why Swindon will be a popular option for commuters on a tight budget.

Bath is also going to benefit from electrification of the line, because the commute to London will fall to a manageable 70 minutes. The beauty of the city - along with a vibrant social and cultural life - makes it a clear choice for more long-distance commuters.

Of course, with an average asking price of £374,617, it's not a tremendously cheap place to buy, but the geography of the city restricts development, so these prices are expected to rise still further.

Property Frontiers says that the booming house prices in Oxford are set to get even higher. At the moment, travel to London takes 60 minutes, but this will reduce even further in 2016 when the line is electrified. Prices in the most desirable parts of the centre aren't much cheaper than London.

However, further out there are pockets of affordability, and when the Water Eaton station opens in 2015 it will open up areas to the north of the city too.

Manchester has seen enormous property price rises over the last couple of years, and Property Frontiers expects this to continue into 2015.

Other commentators are expecting the growth to slow over the next few years, especially given the gains made since 2012. However, demand for properties remains buoyant, and with the growth of the local economy, price rises seem inevitable.

Rising prices in London have pushed buyers further and further out of the centre, so estate agents are now claiming zone three as 'the new zone 2'.

Savills believes that the biggest gains over the next five years will be the less glamorous districts - putting the South and East in the frame. Gritty areas that could benefit include Ladywell, Streatham and Catford in the south, and Leytonstone, Forest Gate and Walthamstow in the east.

Cambridge could also perform well. It has already had house prices lifted by the growth of tech companies to the north of the city, and the arrival of pharmaceutical headquarters will help push prices up further.

In 2016 a new rail service from the city to the science park will keep prices rising, and beyond the opportunities presented by the local economy, Cambridge is also part of the 'outer commute' area of London, which Savills expects to shoot up in value over the next five years.


Read more on AOL Money:

Where should you invest in buy-to-let?

Use your pension to be a pensioner not a landlord

Horror tenants destroy home and sell landlady's garden
Bedroom Tax 'Causes Rent Arrears'
Read Full Story