Buy To Let Property Investment Guide - Top UK Investments in 2024

First things first, what is buy-to-let? Put simply, buy-to-let, often also known as invest-to-let, is a term that refers to purchasing a property to let out to a tenant to make rental income.

Let’s explore the definition of buy-to-let and the basics of these investment properties in a bit more detail.

What is Buy-to-Let Property?

A buy-to-let property is a property that has been purchased by an investor to be let out to tenants.

Buy-to-let investors buy a property and make money from the rent paid by their tenants. When buying a property to let, you can either purchase it outright or with a buy-to-let mortgage.

What Does Buy-to-Rent Mean?

Buy-to-rent in the UK has the same meaning as buy-to-let – it’s when someone owns a property and rents it out to tenants to generate regular income.

Buy-to-rent is simply an alternative piece of terminology that’s often used. Buy-to-rent has the same meaning as buying a property to let.

What are Rental Yields?

Rental yields are a percentage that indicates the return on investment you can expect from a buy-to-let investment property.

A rental yield of 5-6% or above is often considered desirable, and when looking for a buy-to-let opportunity, rental yields are one of the main things investors focus on.

Can You Live in Your Buy-to-Let Property?

When you buy a property for buy-to-let purposes, it’s not usually possible to live in the property.

This is because many investors will use a buy-to-let mortgage to pay for their purchase, and the majority of mortgage lenders and mortgage broker’s deals don’t allow this.

However, those who purchase a buy-to-let investment property without seeking a mortgage deal are free to live in their property if they please.

Learn more about the question ‘Can I live in my buy-to-let property?’ with our helpful guide filled with information.

It’s normal to find yourself wondering, ‘How does buy-to-rent work?’, especially when you’re new to the concept.

In a nutshell, the concept of buy-to-let works in three steps:

1. The investor purchases the property of their choice from an estate agent or property investment company.
2. The buy-to-let investor finds a tenant who will agree to pay the regular monthly rental instalments.
3. The investor receives a return on investment through rental payments.

Of course, you’ll also need to know about the process of actually buying your buy-to-let property, as well as things like buy-to-let mortgages and taxes on buy-to-let purchases.

Find out more about how to buy a buy-to-let property with our informative step-by-step guide, including tips on how to make money from property, the best areas to look at, and the different stages of the purchase process.

One of the most common ways investors purchase a buy-to-let property is by using a buy-to-let mortgage.

These differ from traditional residential mortgages as you pay back the interest you accrue during the term of the mortgage rather than the amount you have borrowed. You only pay back the money you’ve borrowed at the end of the mortgage’s term.

Buy-to-let mortgages also have a higher initial deposit than traditional mortgages, with most requiring around 25% of the property’s cost as a down payment instead of the usual 10%.

Interest rates on buy-to-let mortgages are also higher, so you will have to pay a higher rate than you would for a traditional residential mortgage.

For a more in-depth look at buy-to-let mortgages and if they are right for you, try reading our free guide on ‘buy-to-let mortgages’ by following the link.

If you want to achieve high returns from a buy-to-let property investment, an important factor to consider is where you want to invest.

The best areas to invest in have a combination of high rental yields, affordable property prices and a high demand from tenants looking for rental properties, and generally, major cities are a good place to start looking.

Liverpool and Manchester are widely considered the two best cities to invest in, as both have high rental yields and affordable prices. Liverpool has an average rental yield of 7.92% (per the Land Registry and Home.co.uk), far above the UK average of 4.93%.

Other cities like Sheffield, Nottingham and Birmingham are also solid options due to the affordable prices and high demand from tenants that these cities have.

For a full breakdown of the best buy-to-let areas in the UK, follow the link to read our free guide.

The main taxes included with buy-to-let property investment are:

• Stamp duty tax on buy-to-let property
• Capital gains tax on buy-to-let investments
• Tax on buy-to-let rental income

While stamp duty is a tax payable when purchasing a buy-to-let property, capital gains tax is a tax on any profit you make from the sale of an asset.

This applies to buy-to-let, so capital gains tax should be expected when selling a buy-to-let property. The rate of tax you will pay again depends on the income you make.

Then there’s buy-to-let income tax, which is a tax paid on rental returns. Investors will need to declare any rent they receive in their Self Assessment Tax Return.

The rate of income tax will depend on the amount of income you receive, the same as with capital gains tax.

Click here to read our buy-to-let tax rules guide.