Learner Landlord - Basics

How to Make Sure Your Buy to Let Adds Up

Property has always been considered as one of the safest long term investment strategies and the buy to let sector has become increasingly popular over the last 15 years with the advent of mainstream buy to let mortgages.

The main beauty about property is that you can make money in two ways:

1. Capital appreciation – this is the difference between the purchase price and the price that the property is sold for in the future.

2. Rental Income – this is the monthly cash flow produced after paying the mortgage, letting fees, maintenance, insurance and possibly allowing for void periods. Dependant on market cycle (are we in a period of high capital appreciation) or as we are in today’s cycle a period of stagnation in prices BUT where rents are increasing will determine your best option. Property should be considered a mid to long term investment (5 years +) rather than people who may speculate in today’s market where house prices aren’t robust. A quick and simple way to see if it ‘stacks up’ is by jotting a few costs down. These include the mortgage cost, letting fees, maintained charges, service charges and a provision should be made for voids ( It’s useful to use 1 months void in any calculations – although it’s very rare and property is empty for long)

Here’s an example:

Rental Income £650/mth

Mortgage £350/mth

Insurance £20/mth

Maintenance £50/mth

Letting Agent £78/ mth (10% + VAT)

Voids £55/mth (£650/12)

Cash Flow £97/mth +VE


Stress Test The Deal

Ok, let’s see what happens if the monthly mortgage increased to £450/mth.

The overall position would be a small loss of £3/mth.

Cash flow is essential if you want to stay in the game.

If you can’t pay all your costs each month you’ll end up in a massive loss.

Can you afford to do this?

Some wealthy cash rich investors don’t mind small monthly losses.

They view this as almost a contribution to a payment.


What do experienced landlords look for?

Most experienced buy to let landlords judge an investment by the yield it produces.


Again a simple calculation:

(Total Annual Income) / (Property Value) x 100 = % Gross Yield


Here’s an example:

A property was bought and valued at £125,000.

The monthly rental income is £750.

Therefore the annual income is (£9000 / £125000) x 100 = 7.2%

Certain investors will only invest if a yield is greater than a certain amount.