The Ultimate Buy-To-Let Strategy And Business Plan

Having a buy-to-let business plan is vital, whether you’re starting an empire or buying a single house as a property investment. It helps you understand the risks and plan your finances. 

A good property investment strategy ensures you plan for the hard times and the good. You’ll experience fewer surprises and find being a landlord more enjoyable. This step-by-step guide explains how to create a buy-to-let business plan.

Contents

1. What is a Buy-to-Let Property Business Plan?

2. Things to Consider Before You Become a Landlord

3. Is Buy-to-Let a Good Property Investment?

4. Write a Business Statement

5. Plan Your Finances

6. Research the Property Market

7. Plan How You Will Find Tenants

8. Plan How You Will Manage Your Property
   
   

What Is a Buy-to-Let Property Business Plan?

A buy-to-let business plan defines your property business before you start.

You’ll consider:

• The decisions you’ll make and predict their outcomes 

• Your projected finances

• The risks you are likely to face and how you will mitigate them

• How you will deal with problems

• How you will manage the business on a day-to-day basis
  
  

This guide explains what to consider when writing a buy-to-let business plan. 

 

Is Buy-to-Let a Good Property Investment?

The diagram below shows how the UK’s average house price has increased dramatically since 2000. Since 1984 the value of property has dipped for a short period a handful of times. 

 

That doesn’t mean that property prices will continue to increase in the future. But it does show that property has been a reliable long-term investment in the past. 

It’s worth asking yourself if there is a better investment available to you. For example, you may be better off putting your money into stocks, shares or bonds 

 

To help decide if property investment is right for you, ask yourself if you’re comfortable with:

Tightening profit margins

Owning a buy-to-let property is thought to be less profitable than it was ten years ago. 

 That’s because:

• The government has removed landlord tax breaks.

• Buy-to-let mortgages have become more expensive.

• Regulatory requirements mean landlords need to pay for more licenses.
  
  

Housing market volatility

House prices generally rise over the long term. But occasionally the market crashes. 

This can be stressful for landlords. If you’re risk-averse and don’t like putting money into something that might fall in value, then perhaps property isn’t a good investment for you. 

Long-term growth

Depending on your personal situation, you may need to invest for several decades before breaking even.    

There’s also no guarantee that the huge property price increases of the last 30 years will continue into the future. 

No tenants

You might experience periods where you can’t find tenants. Not only will you lose revenue but you may also have to pay additional council tax and other bills if the property is empty for a long period.

EVO’s 4-Step Guide to Creating a Buy-to-Let Business Plan

Creating a business plan involves outlining all your business goals and strategy.

In this section, we look at each step in detail:

1. Planning your finances

2. Researching the market

3. Finding residents

4. Managing your property

1. Plan Your Finances

 

Start by working out what you will pay upfront and on a monthly and yearly basis.

 

Landlord expenses include:

• Deposit: Buy-to-let mortgages usually require a 25% deposit. The monthly mortgage interest payments on a 25% interest-only loan can be high and it may reduce your revenue. Putting down a larger deposit, say 30 – 40%, makes your business more resilient. 

• Stamp duty: Stamp duty on second properties with a value of £40,000 – £250,000 is 5%. That’s £12,500 on a £250,000 rental property. For residential properties between £250,001 and £925,000 it’s 10%.

• Survey fees: A Royal Institute of Chartered Surveyors (RICS) Level One Survey costs £300 – £900. A RICS Level 3 Survey can cost up to £1,500. 

• Legal fees: £800 – £1,500.

• Estate agent’s fees: Around £3,300 on a £250,000 property.

• Mortgage fees: Up to £2,500 each time you switch mortgage.

• Insurance: Basic insurance on a house with a £200,000 rebuild cost starts at £170 ( per annum). 

• Energy Performance Certificate (EPC): £60 - £120

• Electrical safety Certificate: £125 - £300 (required every 5 years)

• Gas safety Certificate: £35 - £99 (required annually)

• Advertising fees: Variable

• Letting agency fees: between 10% and 20% of monthly rental income 

• Tax: A basic rate taxpayer with a rental income of £15,000 per year would pay £3,000. Higher-rate taxpayers pay £6,000.

 

Interest-only or repayment buy-to-let mortgage?

Most landlords get an interest-only mortgage because the monthly payments are lower. 

 

But the downside is they don’t repay the mortgage, meaning they own less equity in the property. 

 

If you buy a property for rental income, then not owning equity isn’t a problem. 

 

But it could be an issue if you have bought the property to sell for a profit. 

 

Most of the money you make when you sell a property purchased with an interest-only mortgage comes from house prices increasing. 

 

But there is no guarantee that this will happen. Plus, you could get less for your property than expected if property prices crash. 

 

With a repayment mortgage, you gradually pay off the mortgage, giving you more equity and helping you secure a better return.

Calculate rental yield 

Rental yield tells you how profitable a property is. To be accepted for a buy-to-let mortgage a property’s rental yield needs to be 125% of the annual mortgage interest payments, or 25% higher than your mortgage rate.

 

Here’s how to calculate rental yield: 

1. Work out the property’s annual rental income

2. Divide it by the sum you paid for the property

3. Multiply this figure by 100

4. Convert it into a percentage

 

Let’s say you’re planning to buy a £250,000 two-bedroom house near Bristol. Most similar properties in the area are rented for £1,000 per month. 

Your lender is offering a mortgage interest rate of 3.84%.

• 1,000 x 12 = 12,000

• 12,000 / 250,000 = 0.048

• 0.048 x 100 = 4.8

4.8 is 25% more than 3.84, so this house would just scrape the affordability test. If the house price were any higher or the monthly income any lower, it would fail.

 

2. Research the Property Market

Next, determine how much you should spend on a property and what rent you should charge.

 

It is a good idea to research what properties you can afford and their rental value. This helps you decide which properties match your goals and financial situation.

 

This can be done using websites like Rightmove and looking in the “property to rent” section. 

 

Get a feel for what other landlords charge. Take into account the property’s size, type and location.

 

Working this out helps you avoid putting offers in on properties that later turn out to be unprofitable. It will also help narrow down your property search. 

 

Here are some tips for your property search:

 

✔️Know the area: Some budding landlords look at the entire country and buy a property that appears to be a bargain. If you do this, research the area to determine why the property is a bargain. You may find that rental demand in the area is low, meaning you may struggle to get a tenant or a decent income. 

 

✔️ Look for tenant demand: Buying properties in areas with high demand is a good idea. Cities with large universities or hospitals often have people looking for a home. There also might be higher demand near good schools, parks and other amenities. 

 

✔️ Find properties that will increase in value: There are variations in house price growth between regions, cities and even local areas. For example, house prices in most UK regions have gradually increased over the last 10 years. But in the North of England, they have increased rapidly. 

What type of property will you buy?

The type of property you purchase impacts your costs and responsibilities. Here are some options to consider:

House of Multiple Occupancy (HMO)

An HMO is a property rented to at least three tenants from more than one household. Residents usually have their own private areas, but facilities like kitchens, bathrooms and living areas may be shared. 

 

Pro: HMOs allow you to earn more rent from your property. 

Con: Meeting regulations can be time-consuming and expensive. 

Student accommodation

Converting a house into student accommodation can be effective near universities and colleges. 

Pro: Purpose-built student accommodation usually has better rental income potential because students are attracted to it.

Con: You need to look for new tenants regularly. 

Con: Some students don’t look after their homes as well as more permanent tenants would. 

Con: You need to fulfil HMO requirements to rent the rooms out individually. 

Con: Students often leave during the summer or during term breaks. Your tenancies may need to reflect this, leading to gaps in rental income. 

Con: Capital growth for purpose-built student accommodation is limited because the property can’t be used for other purposes. 

Flat or house?

Houses usually get a higher price because they have more space and amenities like gardens. 

Most flats are leasehold; this means you won’t technically own the property and have to pay ground rent and service charges to the freeholder. This adds additional costs and makes being a landlord more challenging. 

The upside of flats is they are generally cheaper than houses. This means they can be a good choice for first-time landlords on a low budget. 

Consider a commercial unit

Another option is to buy a building that you rent to one or more businesses. 

 

There are a number of benefits to doing this:

 

👍 The rental yields are higher

👍 You don’t pay stamp duty

👍 You’ll be subject to less regulation

👍 Longer lease periods of 5 – 10 years

 

The downside to letting commercial property is that it is high risk:

 

👎 Higher mortgage rates

👎 Depends on your tenants’ businesses being profitable enough to pay rent

👎 You are more exposed to government legislation on things like business rates

 

If you want to let commercial property, you need a commercial mortgage. You’ll probably have to prove that you are experienced to get this.

 

You may also have to sign up for a long-term agreement with a lender, up to 15 years. 

 

The mortgage fees vary depending on the size and type of property you buy. A large office block will cost a lot more in fees than a small shop.

3. Plan How You Will Find Residents

Now you have a property you need to find residents to live there. There are four steps to this.

1. Create a clear, comprehensive tenancy agreement 

Your tenancy agreement should be detailed and leave no doubt about where each party’s responsibilities lie. 

 

For example, will the tenant be required to look after the garden or will you do that? If you want the tenant to do it then what standards do you expect to be upheld? What happens if they fail to meet them?

 

Any grey areas in your tenancy agreement could lead to disputes. This could cost you money, lead to your property not being looked after properly, and result in poor tenant relations. 

 

If you hire a letting agent, they usually provide a tenancy agreement for you. It’s always a good idea to check it thoroughly.

 

If you decide to write your own tenancy agreement, visit the GOV.UK website. It has a list of things to include in your tenancy agreement and a template you can download and use. 

2. Advertise your property

There are two main ways to advertise your property:

 

1. Advertise your property on relevant websites. 

2. Pay a letting agent or tenant referencing agency to advertise your property and find potential tenants for you.

 

If you choose to do it yourself, you can advertise on local news sites or websites like Gumtree. But the best solution is to go on a website like Rightmove or Zoopla. 

3. Vet prospective residents 

Vet your prospective residents to ensure they can pay the rent and don’t present a risk to your property. 

 

If you hire a letting agent or tenant referencing agency, they will do this for you. 

 

Here are some of the checks you should perform:

 

✅ Check that the tenant has a right to live in the UK.

✅ Ask to get a reference from a previous landlord and their employer.

✅ Ask to see three months’ payslips and bank statements.

✅ Carry out a credit and fraud prevention check using a service like Equifax.

✅ Check the Register of Judgements, Orders and Fines to see if they have a County Court judgement (CCJ) against them.

Sign up to a deposit protection scheme

The deposit you charge cannot be more than five weeks of rent. You must store it in a tenancy deposit protection scheme by law.

 

These are government-backed schemes that ensure the resident gets their deposit back if they have:

 

• Complied with their tenancy agreement

• Have not damaged your property

• Have paid their rent and bills 

 

There are three schemes in England and Wales: 

 

• Deposit Protection Service

• MyDeposits

• Tenancy Deposit Scheme

 

If you think your resident failed to meet a condition and you want to claim some of the deposit to cover it, you must raise a dispute with your deposit protection scheme. 

4. Plan How You Will Manage Your Property

When managing your property portfolio, there are two main areas to focus on: your tenants and the property itself.

Foster good relations with tenants

Remember that your property isn’t just an investment, it’s also someone’s home. 

 

As a landlord, you’ll strive to provide the best tenant experience possible.

 

Being a good landlord benefits you too:

 

• Your tenants will be more likely to stay for longer, saving you time and money looking for new ones.

• Your tenant will be more likely to care for your property.

• You’ll be less likely to have a dispute with your tenant.

• You’ll get a good reputation as a landlord.

• You’ll experience less stress.`

 

There are three key areas that you and your tenant need to take responsibility for:

 

1. Caring for the property

2. Communication

3. Reporting problems

 

Your buy-to-let strategy and rental property business plan should detail how you will achieve these things. 

Caring for the property

As a landlord, you have a legal duty to ensure that your buy-to-let property is habitable. You’re also responsible for the health and safety of the building.

 

This means any repairs or maintenance work must be dealt with as soon as reasonably possible. 

 

But you should go beyond these basic requirements and show your tenant you care about keeping your buy-to-let property in good condition. 

 

If you do this, most tenants will treat the property with a similar level of respect.

 

Communication

Good communication is key as a landlord. You need to be able to:

 

• Respond to residents and deal with their requests quickly.

• Keep them informed of when issues will be resolved.

• Give them plenty of notice when you or a tradesperson will visit the property.

 

Tenants have a legal right to quiet enjoyment of their home. This means that you must give them at least 24-hours notice if you are going to visit, but this is a minimum and a few weeks is usually better. If you don’t give the correct notice, you can’t enter the property unless it’s an emergency.

 

Also, no-one wants their landlord to keep contacting them or showing up at their house, so it’s a good idea to leave your tenants alone as much as possible. 

 

You need to communicate well and care for your property and tenant, without being intrusive.

 

Reporting problems

This often leads to disputes between tenants and landlords. Tenants may feel their landlord isn’t dealing with their issues quickly. Landlords may feel their tenants fail to report issues early enough or not at all.

 

Sometimes problems take longer to solve because the tenant didn’t describe them clearly. 

 

There are three main ways to ensure that reporting issues doesn’t become a problem:

 

1. As mentioned above, conduct regular inspections to ensure problems are dealt with early.

2. Make it convenient for your tenant to report issues in detail.

3. Keep the tenant informed of progress.

 

Keep your property compliant and in good shape

Managing your property can be split into two broad areas: 

 

• Compliance: These are things required by law. 

• Maintenance and repair: Things that you should do to ensure your property stays well-maintained. 

 

It’s a good idea to have systems in place to ensure both types of tasks are performed efficiently and on time. 

 

This will keep your tenants happy and help you avoid a regulatory fine.

Compliance

Here are the compliance requirements you need to prepare for:

Human habitation

Under the Homes Act 2018, you must ensure your property is fit for human habitation. That means the building needs to:

 

• Be stable

• Be in good condition

• Not have damp or condensation

• Have a safe layout

• Have suitable natural light

• Have suitable ventilation

• Have both hot and cold water supplies

• Have working drainage and toilets

• Not make it difficult to cook or wash up
  
  

Gas

You must have all gas equipment checked and maintained once per year by a Gas Safe registered engineer. You then need to provide your tenant with the engineer’s report within 28 days of the check. 

Electricity

You need to commission new electrical checks once every five years for existing tenancies. You’ll need to get a qualified electrician who can provide you with an Electrical Installation Condition Report (EICR). You then have 28 days to send a copy of this report to your tenant.

 

You must also regularly check the electrical safety of any appliances supplied. 

Energy performance certificate (EPC) 

Landlords are required by law to get a new energy performance certificate (EPC) for each property and give a copy of it to each new tenant. EPCs rate properties based on the efficiency of its insulation, heating, lighting, etc. The most efficient properties are rated A and the least efficient are rated G. Properties must be rated E or above before each new tenancy or they cannot be rented out. From 2030 all new properties must be rated at least C to be let. 

Carbon monoxide and smoke alarms

You are required by law to ensure that carbon monoxide and smoke alarms are fitted correctly and are working at the start of each tenancy. 

Fire safety

If you supply furniture then it must be fire safe. If your property is an HMO then you must supply fire extinguishers.

Legionella

Legionella is a bacteria that can cause deadly illness. If your property has cold water storage then you need to perform a legionella risk assessment on it every two years. 

HMOs

There’s a tonne of legislation and requirements surrounding HMOs. Check out our article on HMO licensing to find out more. 

Licenses

There are several licenses that you may require to rent a property, depending on your circumstances. The cost of each also varies, but is usually between £700 – £1,420.

Managing trades 

Another thing to consider is how you will manage the people who perform the maintenance and repairs on your property. 

When it comes to handling property maintenance, you have three choices:

🧰 Do it yourself: This could save you money on labour costs. But you’ll need to have good DIY skills and be available to visit your property anytime.

🧰 Hire trades: Tradespeople are often reliable and do a good job. But they require a lot of organisation and you may struggle to find someone who responds quickly.

🧰 Employ a team: This is high-risk and requires a lot of organisation, but might be good if you have a lot of properties. 

🧰 Use a third-party end-to-end digital service provider: These are companies that can provide digitally managed services at a fraction of the cost of traditional letting agents.

 

Conclusion

Investing in property can be both rewarding and demanding - you’ll need to work hard to be a good landlord. 

 

That’s why we created EVO. It’s a digital platform that brings together landlords, tenants and tradespeople on one platform. 

 

It’s an efficient way to manage maintenance, repairs and compliance. It’s delivered via a secure, easy-to-use digital platform that allows you to focus on your day job.

 

✔️ Low time commitment 

✔️ End-to-end solution

✔️ Seamless compliance management

✔️ Dashboard provides an overview of all properties and jobs

✔️ Get a tradesperson whenever you need one

✔️ Accredited skills network

✔️ Scalable payments from just £5 per month

✔️ Provides Service history of work carried out at properties 

✔️ Improves communication

✔️ Happier residents

 

Call us on +44 (0)20 8691 9293 or email hello@evo-pm.com to find out how we can take the hassle out of managing your properties.