25 Things You Should Know Before Buying an Investment Rental Property

Before we jump into the nitty-gritty stuff, it’s important to think basic. What exactly do you want out of your investment?

Maybe you’re thinking ahead to retirement or just want some more money on the side. Whatever your reasons, buying rental property is an excellent choice.

However, your goals can impact what sort of property you should buy and what area to invest in.

For instance, if you’re looking at retirement, you may want a property with high growth potential so you can sell it on for a big payday for retirement.

Alternatively, if you’re just looking at monthly income, you may want an area with high rental income and may not be too interested about your return on investment.

While we will explore these options later on in this guide, it’s important to keep your goals in mind when evaluating each aspect of a successful rental property investment.

Land Registry

A government office in charge of record holding of land ownership and charges against property such as mortgages.

Land Registry Fee

A fee is paid to the Land Registry upon selling a property.

Lease

A legal document that allows one party, i.e. a tenant, to rent a property owned by another party for a set period.

Maintenance Charge

A charge, typically on leasehold properties like flats, covers the costs of insurance and maintenance of a building.

Rental Yield

The return on a property investment you earn through rent. It is calculated by dividing your yearly income by the original purchase price and multiplying it by 100 for a percentage.

Rent Arrears

The money owed when rent hasn’t been paid.

Stamp Duty Land Tax

A tax paid to the government by those purchasing a property in England and Northern Ireland. It has different names and rates in Scotland and Wales, but the concept is the same.

Survey

A report from a qualified surveyor that checks the structure of a property and identifies any faults.

Tenancy

The agreed-upon possession of a property by a tenant under the lease terms.

Tenancy Agreement

A contract between a tenant and landlord allows the tenant to live in the property as long as they follow the rules and pay rent.

Void Periods

The time a property isn’t generating rental income when it is vacant.

While buying rental property can be incredibly fruitful and safer than the stock market, that doesn’t mean it doesn’t come with risks.

If you’re asking “how to buy a rental property” and want the best investment possible, you need to do some due diligence and accept that each investment comes with risks.

If Covid-19 has proved anything, it’s that the future is never certain. Stocks can rise and fall on a whim, and house prices could follow suit. There’s really no way of knowing.

With the right sort of investment, though, you can alleviate these risks and set yourself up for success.

Knowing about possible risks helps you identify opportunities that you should avoid and be more prepared for the unexpected.

The most obvious risk involved with buying a rental property is that the housing market can change, affecting your potential earnings.

If, for instance, property prices were to fall, you would not get a good return on investment when it comes to selling your property during that time.

Of course, while the market can sometimes experience changes and fluctuations in property prices, the housing market is very resilient and always bounces back.

That’s why it’s a good idea to research the market beforehand and avoid exiting your investment at the wrong time.

On the flip side, one of the biggest benefits of owning rental property is that you’re able to make huge returns through rental income and capital growth.

If you want a safe investment, investing in rental properties is far safer than the stock market.

Benefits

• You earn regular monthly income through rent.
• You can earn a significant profit on the sale of a property over a long period of time.
• Many cities, such as Liverpool, Manchester, and Leeds, offer huge potential for significant returns on investment.
• Less risky than stocks.
• Can be highly affordable depending on the property location.
• You can take out various insurance to cover losses such as rental income.

Risks

• Tax changes mean profits can be affected.
• If you choose to not use insurance, you can risk losing out on profits or income when the property is vacant.
• Property prices can drop in certain areas, and you can lose a lot in capital growth. It’s important to note, though, that selling in the distant future will alleviate these issues as property values continue to grow over long periods.
• There’s a bunch of other costs to consider, like stamp duty and general maintenance.

A lot of the steps in tip number five revolve around the fact that you will become a landlord.

While you don’t have to become a landlord to rent a property (a common misconception that will be addressed next), it’s important to understand exactly what it means to be a landlord if you choose to go down this route.

Simply put, being a landlord can be a lot of work. Not only do you have to find tenants, but you also have to maintain the property and keep it in shape.

From clogged toilets to organising inspections, a landlord needs various skills to keep the property ticking.

Owning rental property can be a big responsibility. You need to understand the wealth of legislation in place with private renting.

Safety Responsibilities

As a landlord, you must maintain the safety of a property. From gas and electrics to fire safety, you will be subject to several guidelines.

Gas safety

According to the official government website, as a landlord, you must:

• Ensure gas equipment is safely installed and maintained by a Gas Safe registered engineer.
• Have a registered engineer do annual gas safety checks on every appliance and flue.
• Give a copy of the gas safety check record to a tenant before moving in or within 28 days of the last check.

Electrical Safety

Likewise, for electrical safety, you also must:

• Ensure the electrical system, such as sockets and light fittings, is safe.
• Ensure all appliances connected to these systems are also safe, i.e. cookers and kettles.

Fire Safety

Finally, landlords must:

• Provide a smoke alarm for each storey of the property.
• Provide a carbon monoxide alarm in rooms with a solid fuel-burning appliance like a wood-burning stove.
• Ensure there is access to escape routes at all times.
• Make sure all the furniture and fittings you supply are fire-safe.
• Provide fire alarms or extinguishers if the house/property is in multiple occupations (HMO).

Repairs

As a landlord, you will also need to conduct repairs on the property. There are certain items in a household that you will be responsible for repairing.

These include:

• The property’s structure and exterior
• Pipes and drains
• Basins, sinks, baths
• Heating and hot water
• Gas appliances
• Flues and ventilation
• Electrical wiring
• Any damage you cause by attempting repairs.

Some repairs, such as repairing common areas like staircases in a block of flats, will depend on the tenancy agreement.

As part of this tenancy agreement, you may agree for your tenants to carry out their own repairs when needed, but it needs to be noted you cannot force a tenant to do repairs that fall under your responsibility.

The responsibilities don’t all fall on you, however. Let’s say your tenant’s bath overflows and leaks into another flat and causes damage.

In that case, the tenant will be responsible for paying repairs.

Rent Increases and Arrears

As a landlord, you will want to maximise your rental income.

With rent averages increasing month by month and UK rent already 9.3% higher than a year prior, according to Homelet, you may want to constantly improve your rent.

However, how much you charge to your tenants can be a tricky subject, and there’s legislation in place to ensure you cannot change rent prices on a whim.

First and foremost, rent increases are part of your tenancy agreement, which should include how and when you can review the rent.

For those on a periodic tenancy (one that rolls on a month-by-month or even a week-by-week basis), you can only increase rent once a year.

On the other hand, for a fixed-term tenancy (one that runs for a given period), you can only increase rent upon agreement with your tenant. If there is no agreement, you can only increase the rent after the term ends.

Generally, for any tenancy, you must get permission from your tenants to increase rent. The rent increase needs to be “fair” and “realistic,” in line with average local rents according to gov.uk.

So, how do you actually go about increasing rent?

Well, firstly, you must give your tenants a minimum of a month’s notice if the tenant pays rent weekly or monthly.

Conversely, if the tenant has a yearly tenancy, you need to give a minimum of six months notice.

There are a few methods for a landlord to propose a rent increase.

These are:

• Renew the tenancy agreement at the end of the fixed term with an increased rental figure.
• Agree to the rent increase with your tenant and take a written record of the agreement that both of you must sign.
• Use a “Landlord’s notice proposing a new rent” form. This increases the rent upon the end of the fixed term.

Arrears

Whether being a landlord is your primary job or a side option for extra money, missing out on rental income can be a headache.

No landlord enjoys missing out on their income when their tenant is unable to pay, and you can evict your tenants if they fall behind on their rent.

The rules have slightly changed due to coronavirus, but a landlord can still evict.

However, you must now give your tenants a minimum of six months’ notice if you plan on evicting them. Notably, if they owe you six months’ rent, you do not have to give this time.

For a full breakdown of the rules and advice from the government during the pandemic, be sure to read official publications.

Tenant Rights and Responsibilities

The final thing to know if you want to be a good landlord is understanding the rights of tenants and their responsibilities to you and your property.

According to the government, a tenant’s rights are:

• To live in a property that is safe and in a good state.
• Have their deposits returned upon the end of the tenancy.
• Can challenge any high charges considered excessive.
• Know who their landlord is.
• Live in their home undisturbed.
• Be protected from evictions and rent that are considered “unfair.”
• Be able to see an Energy Performance Certificate for the property.

But tenants also have responsibilities for their homes.

Not only do they need to allow you access to the property (although you need to give 24 hours notice and visit at a reasonable time), but they also have a host of responsibilities to your property.

These include:

• Taking good care of the property.
• Paying the agreed rent.
• Paying any other associated charges agreed with the landlord, such as utility bills.
• Paying for any repairs and damage caused by themselves, friends, or family.

With all these factors and laws in mind, you may not feel like being a landlord is for you.

But don’t let this put you off buying an investment property and investing in rental properties.

The reality is you do not need to become a landlord. Instead, you can use the services of a property management company.

As already established, the price of purchasing a property is just one small part of the entire investment process.

This is important to know, as you’re going to encounter several different fees along the way.

One of the first things you should do before you buy a rental property is to do the maths for your real estate investment, working out all the costs involved while also thinking about the rental income you will receive.

The additional expenses you need to think about are buy-to-let mortgage repayments (something we will discuss in greater detail later), taxes such as stamp duty tax, and property management fees, if applicable.

If you’re looking at investing in rental properties, doing the maths is vital for success.

Stamp Duty Tax

Stamp duty can be a demanding fee, and many first-time investors have never heard about it before.

If you read section two’s definitions, you will already know what stamp duty tax is.

Stamp duty is a tax paid by those purchasing property in England. The tax rate depends on how expensive the property is and the type of purchase being made.

If you’re a first-time buyer, you will only pay stamp duty on properties that surpass a certain threshold.

If you’re hoping to buy a property in 2024, you can check out the latest tax rates for those buying a second property in the UK.

Note that stamp duty is only applicable in England and Northern Ireland, with different rates present for those buying a second home in Scotland and Wales.

Hopefully, you now feel more prepared and equipped to deal with buying an investment property.

Now, it’s time to start looking at potential properties you may want.

You might already have a particular property in mind, but have you considered its location?

Location is vital to consider when buying investment property. It can dictate the rent you will earn, how affordable the properties are, future growth rates, and demand.

Ideally, you will want to target cities or towns that offer high growth rates, affordable prices, high rent, and high rental demand.

High Capital Growth Rates

Perhaps the most crucial aspect if you are planning for retirement is high capital growth rates.

Capital growth is vital for an investor, as it represents the increase in the value of your property over time.

Recently, property experts Savills released their latest property price predictions for UK regions. The results may surprise you.

Currently, the North West region is expected to see some of the highest levels of growth by 2028, with a 20.2% house price increase.

At the bottom of the table is London, with just a negative -1.2 price growth in the next four years.

These areas are integral to consider, as they are typically valued as some of the best places to buy property UK. Be sure to target regions with high growth potential in both property prices and rent to make the best investment possible.

It’s a good idea to invest in the areas with the highest capital growth rates, as it shows a place that is on the rise and has a bright future ahead of it.

But it’s not the only aspect of capital growth you need to consider; you should also look at the area’s capital growth history.

Past capital growth rates are a good signifier of an area’s potential as they can show a consistent rise in house prices, which is good news for your pockets.

Using tools like the UK House Price Index, you can see past house prices by month for each region, borough, or city and compare it to current house prices to see growth levels.

The UK House Price Index does a lot of the work for you and gives you percentages for how prices changed year-on-year or month-by-month.

If you have a location in mind, it’s a good idea to look on the website to see if a city offers the price growth potential you’re looking for.

To do some of the hard work for you, though, we have compiled a list of house price changes over the past 20 years in the UK’s major cities and destinations.

So, what does all this data mean for you?

It seems like London is one of the worst locations for capital growth at the moment. Not only is there minimal growth set for the next four years, but there’s been consistent negative growth over the last five years.

In fact, in 2020 alone, prices dropped by 15.54% in just 12 months.

On the flip side, if you’re looking at buying an investment property and want the highest capital growth potential, the most obvious options are Manchester, Liverpool, Sheffield, and Leeds.

Manchester, in particular, has seen some staggering growth over the years and has outperformed every city over a five, 10, and 20-year period.

Plus, with anticipated growth of 11.7% in the North West region, you can’t go far wrong with buying an investment property in Manchester.

Liverpool has also performed incredibly well. While its historic growth hasn’t broken records, it has been consistently increasing over the years.

In 2020, the Liverpool housing market exploded, rising by a staggering 17.59% between February 2020 and February 2021.

This has continued well into 2023/24, with official Land Registry data showing Liverpool houses increased by around 7.19% since 2022.

The North West is likely the best location for investment for the foreseeable future.

Affordability

Another crucial factor to a location and buying an investment property is affordability.

While affordability alone isn’t a deciding factor, if you’re able to find a city that offers reasonable growth rates and is also affordable, then you’re onto a winning location.

To find current average house prices, you can go to the UK House Price Index or use the latest data from property portals Zoopla or Rightmove to find the average house prices on their books.

Property prices can differ heavily between property types, so we have compiled a list of property price data for popular property types by city.

If you’re a first-time investor, then chances are you won’t be able to afford these staggering prices in the capital.

Again, the best cities seem to be Manchester and Liverpool. While Manchester’s prices are higher than some other cities, the level of capital growth in the city makes the price tag worth the entry price.

Of course, these are just averages, and you can get significantly lower prices than this.

For instance, one of our Liverpool properties at RWinvest, the revolutionary The Prestige, starts at just £144,950.

Meanwhile, our luxury Manchester development, Merchant’s Wharf, starts at just £149,950.

Rent

Naturally, average rent in a location is vital for prospective investors and landlords thinking of buying homes to rent.

This is because the average rent in an area dictates how much you will charge for your property.

If you are just about rental income, there are some obvious cities that offer the highest monthly earnings.

Using Zoopla data, you can find the average rent by city.

Currently, London offers some of the highest rent, with the current average in the city sitting at £4,578 PCM.

That means every year, you will earn £54,936 on a single property.

Of course, the caveat is that it will require a fortune to tap into this market.

On the flip side, locations like Liverpool are more affordable but offer smaller rent in comparison.

Currently, the average Liverpool property commands monthly rental fees of £1,196 PCM or £14,352 per year.

While on the surface, this looks bad in comparison, it can be misleading.

This is because you could buy multiple properties in Liverpool for the price of just one in London.

In fact, you can buy six properties in Liverpool with change left over for just one in London.

This means the actual yearly income in the Merseyside city would be around £86,112, completely overshadowing the capital.

This highlights that you can’t take rental income at face value, with other factors coming into play.

Likewise, you should also consider rental growth.

Using the Homelet Rental Index, you can find current rent and rental growth rates by region.

As a whole, UK rent has increased by 9.9% from last year.

Looking at particular regions, these numbers change dramatically.

Homelet has recorded an 11% drop in rent prices in the London region since last year.

On the other hand, the North West has increased by 9.1%, while Yorkshire and The Humber have increased by 8.5%.

It’s important to note, though, that many savvy and experienced investors don’t value monthly rent too highly.

When buying your first rental property, it’s a common mistake to put all your eggs in the rental income basket.

Instead, you should focus heavily on rental yields, a measurement we will discuss in detail in a later section.

Rental Demand

Finally, when evaluating a location, it is vital to consider rental demand and the type of tenant you will expect to see.

Now, rental demand is a complex factor to measure directly, but prominent signifiers are how fast properties sell, the number of property enquiries, population growth, and the increase in house prices and rent.

These measurements are likely to increase the demand for property there is.

Take Manchester, for instance.

A report by Zoopla in 2020 found that the ratio between the available supply for property and the demand for it is currently 1:5.

This means that for every single property, five buyers are interested.

That’s a massive demand for property and highlights that you will have minimal void periods if you were to rent in the area.

Moreover, it’s essential to consider the local population.

Not only will this signify what type of tenant you are likely to see, but it will also show if the city is on the rise with growth levels.

Using Manchester as an example again, you can evaluate a city’s investment potential based on the population.

According to reports, Manchester has seen a 27.8% population increase since 1991. Meanwhile, the Greater Manchester population increased by 7.7% between 2006 and 2016 – double the UK average growth rate.

This is significant as it shows more and more people are choosing to live in the city.

And perhaps even more significant for investors, a bulk of this population are young people.

According to data from the local government, around 37% of the city population are aged between 18 and 34.

Manchester also has a considerable student population, making it one of the biggest student cities in all of Europe.

Over 100,000 students live in the Manchester region across five universities. Of these students, around 51% choose to stay after the graduate – the second-highest graduate retention rate in the country.

So why is this important?

Well, young people are more likely to rent as they are typically unable to afford to buy their own properties.

This age group is typically referred to as Generation Rent and should be your target tenant when investing in property.

Not only does this highlight that there’s plenty of rental demand, but it also informs you on what type of property you should buy (something we will address further on in this guide).

Overall, if you’re looking at buying your first rental property, be sure to consider all these factors mentioned for a successful investment.

When looking at houses to rent, it’s important to put yourself in your tenants’ shoes. Would they want to live here?

Considering the liveability of an area is vital, and you need to understand precisely what the local neighbourhood offers.

For young families, the quality and availability of local schools are paramount, so you should aim to buy a property with these local facilities if you are targeting this tenant group.

Likewise, you need to consider factors like local crime rates, job opportunities, health care, transport, education like universities, and nearby amenities like restaurants and bars.

These are all of critical importance to an individual’s life.

A good rule of thumb is if you don’t want to live there, then the chances are your prospective tenants won’t either.

To understand what cities offer, it’s good to read local reports to understand exactly what an area is like.

Here at RWinvest, we have several key guides on various areas so you can learn what investing in the area entails.

You can find guides to Liverpool property investment, Manchester property investment, and more on our website.

It’s also a good idea to look at local media reports.

Recently, Liverpool and Manchester were voted in the top 10 global locations for business start-ups.

Manchester has also been deemed the best place to live in the UK by the Global Liveability Survey, which ranks 140 cities on factors like education, culture, and health care.

There’s plenty of information out there to help you decide which city is the dream location for rental property investment.

While the present is always essential when considering buying investment property, you must also understand the future of a location.

Regeneration is a huge part of this future and helps make a city far more attractive to its residents.

This is good news for investors as regeneration will often lead to increasing populations, rising house prices, and hiking rent prices.

A lot of cities have been completely transformed over the last few decades because of UK regeneration.

Cities like Liverpool, Manchester, and even smaller towns like Slough are set to see some mega regeneration efforts in the coming years.

These cities are definitely worth considering if you’re thinking of buying renting property.

Liverpool

If you’re thinking of investing in property in an area that has already been transformed by regeneration and continues to do so, then Liverpool should be at the top of your list.

Liverpool has been heavily transformed since the 1980s and has changed from a struggling economic area to one of the most prominent UK powers.

Major billion-pound projects like Liverpool ONE put the city on the map by introducing a world-class shopping centre.

Fast forward to 2024, and there are some seriously impressive upcoming projects already being built or in the pipeline.

This includes the £5.5bn Liverpool Waters project, which is set to introduce five new neighbourhoods to the city centre.

Likewise, the £2bn Knowledge Quarter is continuing to be developed, an area that is already home to thriving science-based businesses and the city’s major universities.

A big reason behind Liverpool’s strong growth levels and high rental yields are regeneration efforts like this, making it an ideal location for future growth.

When looking at investing in property, Liverpool is one of the best locations to consider for the future.

Manchester 

Just like Liverpool, Manchester has also been completely changed over the decades.

Manchester’s business backbone was rejuvenated thanks to the £1.5bn Spinningfields project.

Located in the heart of Manchester, the project added a new area to the city, which is now home to 150 financial and commercial organisations.

Due to its scope, Spinningfields has been dubbed the North’s Canary Wharf, a massive testament to Manchester’s prominence in the business world.

This business growth was also supported by MediaCityUK, a project that has cost over £1bn.

MediaCityUK has attracted several world-class media organisations like the BBC and ITV. They have moved their major operations from London to the North.

Hiking prices in the south have led to many people and businesses fleeing up North. This has been mirrored in the Manchester economy, which is now the second-largest regional economy in the UK and has grown twice as fast as London’s since 2014.

While past regeneration has been impressive, a lot is going on in 2024 and beyond, too.

You can expect a whopping multi-billion pound project over the next decade, with the likes of NOMA, the Northern Gateway Redevelopment, ID Manchester, and more coming to the city.

All these projects have worked in tandem to ensure that Manchester is a top location for investing in property.

Slough 

While the last two entries are already established property hotspots, one area you may not have thought about investing in property is Slough.

The town outside London is actually one of the best up-and-coming investment areas in the UK, but has been ridiculed over the years thanks to the comedic efforts of Ricky Gervais’ in The Office.

If you want to get ahead of the curve, Slough is in line for tremendous growth over the coming years.

Slough is a commuter town, meaning thousands travel from there to work in London, which is easy to do thanks to the excellent transport options on offer.

In fact, Slough was voted as the second-best location in all of Europe for connectivity. This is about to get bolstered through the introduction of new Crossrail routes.

The £14.8bn Crossrail is a new railway system making it easier to travel to significant locations in London.

New links are being brought to the area, one of which is in Slough. The new links caused local house prices to increase by 66% essentially overnight.

If you want to find houses to rent with excellent growth potential, Slough is a great up-and-coming property investment hotspot to consider.

The town is one well worth keeping an eye on, and if you want to learn more about the region, be sure to check out Slough property investment on our website.

Overall, regeneration is vital for an area’s success, and you should consider any upcoming regeneration efforts before looking at houses to rent.

If you want more information about regeneration in other cities like Leeds, Birmingham, Sheffield, London, and more, read our UK regeneration areas guide.

Off-plan is a perfect option when finding houses to rent because it is cheaper than traditional property investment.

As an incentive to buy into a project that hasn’t been completed, developers will offer cut-price deals to secure more funding.

This means you can buy properties for thousands less than market value.

For instance, one of our off-plan properties, Merchant’s Wharf in Manchester, can be bought for over 55% below market price.

Also, because they’re cheaper, there is bigger scope for capital growth, so you can expect an even stronger percentage increase in capital over the years.

Finally, to sweeten the deal even further, some companies will offer assured rental returns for a set number of years.

This means for the first few years of buying real estate; you can feel completely safe knowing your investment is seeing consistently strong returns.

Pros

• Stronger capital growth potential than already built properties.
• Cheaper than market value, so significant chance of a great deal.
• Assured rental returns for a set number of years.
• Cherry-pick the best units.
• New build properties so incredibly modern.
• Some companies offer payment plans so you can pay in multiple steps.

Let’s say you’ve decided to get the most affordable properties on the market and opt for the off-plan route. What next?

Well, here is a step-by-step guide for investing in off-plan investment properties.

Step 1- Do Your Research

Like any property project, you need to first get to grips with the ins and outs of off-plan investment property and what it entails before investing.

Step 2- Choose a Location

As discussed, try and pick a location with high market growth potential and strong rental yields.

Step 3- Select Residential or Student Property

Each property type has its pros and cons, so choose carefully which type you wish to invest in.

Step 4 – Explore Financial Options

It can be challenging to secure a buy-to-let mortgage due to timing issues, but it is still possible. It will be easier to buy off-plan property if you have the full cash amount available. Remember, you can usually buy in steps, so you don’t need the total amount right away.

Step 5 – Do Your Due Diligence

Make sure you investigate the company you’re investing with and check out their reviews and track record.

Step 6 – Choose a Property and Pay a Reservation Fee

This is kind of like a deposit and ensures your property isn’t sold to anyone else.

Step 7 – Solicitor Carries Out Legal Aspects

You will need a conveyancer to deal with the legal aspects. You can get your own, but sometimes investment companies will give you a solicitor who is well-versed in investment properties.

Step 8 – Pay Your Deposit and Exchange Contracts

This is the exciting part as you near full ownership of the property.

Step 9 – Complete Your Purchase Upon Completion of Property

Pay off the rest of the price of the property when it reaches completion. Congratulations, the property is now yours.

Step 10 – Think of an Exit Strategy

You won’t want to sell for a long time, but it’s important to eventually think about your exit point. Be sure to take advantage of strong capital growth in the future and sell at the right time to maximise your profit. You also may want to connect with an experienced agent or company when looking to sell your property down the line. Property Solvers, for instance, are a company that specialises in this regard.

If you feel auctions and finding properties yourselves is daunting, don’t worry; many beginners think like that.

It can be intimidating choosing a property as a beginner because it can be difficult finding assets with the best investment potential.

If you want to know how to buy investment property as easily as possible and avoid this hassle, one method is to use the services of a property investment company.

These companies can help you invest in property and can easily guide you through the process of learning how to buy investment property.

Companies like RWinvest will provide solicitors and identify properties with the best investment potential.

Investment companies also work with developers to offer properties to customers at a cut price.

Due to their expertise and industry knowledge, these companies will know what makes a good investment and will typically only offer properties with a high chance of success.

Here at RWinvest, we are a property investment company specialising in residential and student property.

We’ve been in operation for over 17 years and have helped a whopping 75,000 investors make the investment of their dreams.

We’ve looked at all the top advantages of buying through an investment company, but what about the disadvantages.

Well, if you’re asking how to invest in rental property through an investment company, there are some disadvantages you should consider.

Miss Out on Hands-On Experience

Many people enjoy the control of property investment and are excited about the personal journey of finding a new property venture from scratch.

If this is you, you may not enjoy the hands-off experience of property investment companies, as the bulk of the journey is handled by other experts.

If you’re a beginner, it’s highly recommended you use the services of an investment company to build up experience.

Limited Investment Choices

Many investment companies specialise in specific areas or property types. This means using their services will restrict you to precisely what is on offer from the company.

For instance, if you’re looking for a big house or an HMO, using RWinvest isn’t recommended as we specialise in residential flats and apartments due to the more affordable prices and higher rates of return.

Overall, property investment companies are perfect for beginners. If you want to learn more, check out our guide to property investment companies.

It’s easy to get carried away when getting excited about starting your property venture, but you need to think smartly and try and be as cost-effective as possible.

This notion not only applies to selecting a property, but it also applies to the mortgage you decide to get (if you want one).

You can get mortgages from both banks and building societies, but scepticism is key. Are they truly offering you the best rates possible?

For this reason, be sure to shop about and research thoroughly what the best deals are.

You can even opt for the services of an independent broker who will help guide you through your options to see what’s right for you.

There’s no rush to get started in property, and you should take your time so you make the best decision possible.

A huge bit of advice when asking how to buy an investment property is to try and save as much money as possible.

When people ask how to buy an investment property affordably, they often think of saving money on the house itself.

While this is obviously something you should do, it’s well worth trying to pick the best mortgage deal possible, as you will save plenty of money when buying a house to rent out later down the line.

Taxes. Just the word can be nauseating to a person considering rental property investing.

Nothing eats away at profits than taxes, and if you want to get into rental property investing, there’s a lot of taxes you’re going to need to consider.

Thankfully, there’s also a lot of tax relief potential to make sure your profits don’t get completely gobbled up.

With this in mind, let’s explore some of the taxes you can expect to pay when rental property investing and how you can reduce the rates.

Income Tax

Firstly, let’s talk about the prominent tax you can expect to see when buying a house to rent out; income tax.

Income tax is the tax paid on the profit you earn from your rental properties. This profit is defined as the amount left over after calculating your rental income and subtracting any expenses or allowances.

Those who earn up to £50,000 will pay a base tax rate of 20%. Those over the £50k mark will pay a higher tax rate of 40%, while those over £150,000 will pay a 45% rate.

You also have a personal tax allowance every year, which is the amount you earn before paying tax. This is currently set at £12,500.

Notably, this income tax covers all of your income. So, if you earn £30,000 a year from rental property and £30,000 a year from a full-time job, you will pay the higher tax rate as you have an annual income of £60,000.

Thankfully, there is some tax relief on income tax.

The official government website lists many costs you can deduct from your income which involves the day-to-day running of a rental property.

Some examples include:

• Letting agent fees
• Utility bills
• Maintenance and repairs
• Council Tax

Be sure to check out our full guide for buy-to-let tax on our website.

Capital Gains Tax

Another tax you need to consider when buying a house to rent out is Capital Gains tax.

While this tax won’t be relevant at the start of your journey, it will be when you decide to sell your rental property investment.

This is because capital gains tax is a tax paid on the profit you make when selling a property.

There are three different tax rates for capital gains, with the basic rate sitting at 18% , and the higher and additional rates paying 28%.

Like Income Tax, you get an annual capital gains tax allowance of £12,300, which you can combine with a partner for a total of £24,600.

In terms of tax relief, you can mitigate the costs if there were losses made upon the sale of a property, solicitor fees involved when selling the property, estate agent fees, advertising expenditure, and stamp duty tax (which we spoke about earlier.

Buy-to-Let Mortgages Tax Relief

Finally, when buying a house to rent out, you need to know about buy-to-let mortgage tax relief.

As we spoke about in the last section, there are some tax benefits to ease the burden of paying for a buy-to-let mortgage.

Unfortunately, these tax advantages have changed a lot over the years, making many people no longer utilise buy-to-let mortgages.

Since April 2020, the law changed, and you are now no longer able to deduct your mortgage expenses from rental income.

Instead, you now receive a tax credit that’s based on 20% of your monthly interest payments.

Notably, these taxes only target individual landlords, so many investors have decided to start a limited company when buying a house to rent out, something that we will discuss in the next section.

Owning a rental property can be highly profitable, but only if you’re prepared to play the long game.

By this, we mean tying your investment up for a set period of time to generate the maximum amount of rental income and, ultimately, huge capital growth returns.

Playing the long game also includes keeping hold of your rental property through times of uncertainty.

It’s common for investors to panic during periods when the economy and property market seem unstable.

A good example is the recession of 2007. During this time, many property investors sold their properties out of fear that they would lose money.

In reality, investors who held onto their rental property investments during this time have now seen property prices grow higher than they were before the recession, benefitting from significant capital gain.

The same logic can be applied to the UK property market in 2024.

Due to economic uncertainty brought on by the Covid-19 pandemic and the economic trouble seen at the end of 2022, many property investors were feeling concerned about their venture.

However, with lower-than-usual property prices currently available, savvy buyers can purchase a rental property for a discounted amount.

It means that those buying to rent will now benefit from the increased rental demand that the market is currently seeing and experience significant future capital growth rates.

Let’s use a practical example to show the benefits of playing the long game.

In 2001, buying to rent a typical Manchester property would cost about £44,813, according to the UK House Price Index.

Jump forward 20 years, and if you sold the same property in 2024, you could expect to sell the property for over 416% more.

While it’s definitely crucial to have a good idea of the property market and the buy-to-let investment process before buying rental property, you shouldn’t feel discouraged if you’re not an expert on rental property investments.

Many investors will not have in-depth knowledge about property investment but will know enough to identify strong opportunities.

One of the best things about using a property company when buying property to rent out is the guidance you receive during the purchase process.

Property consultants tend to have many years of experience and training in property investment and the housing market, providing clients with advice and answering any queries they might have.

When buying rental property through an investment company, you’ll also usually be able to see the rental yields you can expect to receive, whether they’re assured or projected yields.

This is the ideal way for buying an investment property to rent. If you’re asking, “are rental properties a good investment” they can be when done right like this.

If purchasing a rental property privately, you may need to work out potential yields yourself.