The idea behind buy to let is that your capital asset will increase in value over a number of years as you receive a steady income from lodgers to absorb the costs of owning a property.

Rental returns are not necessarily going to be booming and it is not unlikely that you will need to hold onto your property for at least ten years if you are to make money. Even then, after all the stress of renting a property out, there is no guarantee that your property will have increased in relative value.

Try to maximise your chances of success in the business of buy-to-let by considering the following hints and tips:

• Choose a local property, this will enable you to sort out any problems much more efficiently (in terms of time and cost) than if you have to travel large distances.

• Choose a property that will appeal to your market. Know the area, research the potential clients and gear your property accordingly, look for clues such as business parks, nightlife, schools and universities to determine your likely market.

• Determine the popular types of renting in your area and analyse the demand/turnover. Is there unsatisfied demand for rental properties?

• Try to choose a property with good transport links (train stations, motorway junctions) and off-street parking if possible.

• The smooth running of your property should be a major priority so do not make things difficult for yourself, try to obtain a low maintenance property, steering clear of large garden areas as they can be an expensive responsibility.

• If families are your target market then there should be large storage areas and space in your property. If you are planning to rent to young professionals then all bedrooms should ideally be doubles.

• If you are the sole freeholder of the property, you will need to ensure that the common parts and the exterior of the property are well maintained. If your buy-to-let is leasehold, the responsibility for the maintenance of the exterior and interior communal areas will rest with the freeholder unless your lease specifies otherwise.

• Research the rental price differences in your area between fully-, part- and un-furnished properties. There is often little difference meaning careful consideration over your furnishing decision is advisable. Regardless of the rental price difference though you need to research the preferences of your target market, students for example will not be looking to furnish there own homes.

• Look to purchase a property in an area that is undergoing development, or an area that is in line to be developed in the near future. Scaffolding and skips are always a good sign in terms of an area that is on the up, whether the work is being done on complexes, whole streets or merely individual properties.

Financing a buy-to-let

Buy-to-let mortgages are generally available for between 5 and 45 years and for up to 80% of the value of the property. The lender will take your income into account and you will be able to make before-tax deductions against the rental income for property owner costs such as insurance, maintenance and agents’ fees. You will also be able to claim for the replacing of fixtures and fittings or items of furniture although the initial cost is not tax deductible.

You may find a ‘wear and tear’ allowance applies, where a deduction can be claimed for 10% of the ‘net rent’ from the furnished letting to cover the depreciation of plant and machinery, such as furniture and appliances that are supplied with the accommodation. There is the availability of insurance cover for the buildings and contents, as well as legal expenses in the event of a defaulting tenant leading to court action.

A lot of lenders expect landlords to use a letting agent to manage the property, and also, for an ASTA (Assured Shorthold Tenancy Agreement) to be drawn up.

Additional costs

Many investors often underestimate the additional, unforeseen financial commitments required when buying to let and so most investment lenders require that the total rent received before tax (your gross return) is at least between 130% and 150% of your monthly mortgage repayment.