The ultimate guide to buy-to-let properties

Buy-to-lets are properties bought with the intention of being rented out to tenants. There is a spectrum of individuals who look to purchase buy-to-let: from ‘armchair’ investors to portfolio landlords. However you decide to invest, the first step is to look at your investment goals. Are you in search of a property that will have strong long-term capital appreciation, or are you looking towards a property that will generate high rental income? Are you set on a certain location or more flexible in your search? Acknowledging these goals will allow you to hone in on options and find properties that meet your criteria.

Different types of properties will lend themselves to certain goals more than others. A single let has the potential to offer more stability and long-term capital appreciation, while a House in Multiple Occupation (HMO) could present higher rental yields but also more maintenance challenges. Considering the different property types and how they relate to your investment goals will mean that you can get the most out of your buy-to-let. So, let’s take a look at the different types of buy-to-let properties and what they have to offer…

Single lets

What are single lets?

Single let properties are pretty much exactly as they sound, they are properties with a single tenancy. This doesn't necessarily mean that they only have one occupant, the single tenancy could encompass a family, a couple, or an individual. When people think of buy-to-lets, this is often the type of property that comes to mind — it is typically seen as the ‘traditional’ buy-to-let property. The benefit of single lets is that they are often easier to manage than HMOs, they are also frequently viewed as a safer, more stable investment property with the potential for greater capital appreciation.

Why could a single let be the investment property for you? 

Although this investment might not generate as much rental yield as other slightly riskier property investment choices such as HMOs, it is frequently chosen by armchair investors and first-time landlords. With longer-term tenancies, locations that provide the potential for capital appreciation, and strong rental demand, single lets are a great choice for investors looking to get their foot in the buy-to-let door.

Why wouldn’t you invest in single lets?

Landlords looking to rapidly expand their portfolio would be impacted by the more modest rental yields from single lets, it would take longer to generate the capital for portfolio expansion with this property type. If you’re aiming to become a portfolio landlord and replace your regular income with returns from property investment, another type of buy-to-let might be better for you.

HMOs

What are HMOs?

Houses in Multiple Occupation (HMOs) house three or more tenants from more than one household. This would mean there are multiple tenancies and the tenants share facilities such as a toilet, bathroom or kitchen. HMOs tend to be seen as riskier investments that require more management than single lets. An HMO with five or more tenants requires a specific HMO license. 

Why could an HMO be the investment property for you? 

Want to make property investment your primary source of income by building or expanding your portfolio? HMOs might be the route you decide to take. A great aspect of having multiple tenancies in one house is that even if one tenant leaves and has to be replaced landlords will still receive rental income from the other occupants. This allows a continuous return on investment. Having more than one tenancy within a single property typically assures higher monthly returns, the initial capital you invest to purchase the property goes further for your short-term income. You then have the option to reinvest the extra returns into financing for another property to continue portfolio growth. 

Why wouldn’t you invest in HMOs?

If you’re looking for an investment that allows you to take a more hands-off approach to receiving returns, HMOs might not be the choice you make. One of the drawbacks often mentioned when it comes to HMOs is the management costs and efforts of this property type. Making sure the property is compliant with all the regulations of HMOs takes more work than single-lets and there are costs associated with this as well. The maintenance of these properties can also end up being more costly due to the damage caused by having multiple tenants sharing spaces. 

Student lets 

What is a student let?

Student lets mostly fall under the HMO umbrella as the majority of them are occupied by multiple students from different households. These are buy-to-lets bought to rent out to university students over an academic year. If your student let hosts five or more tenants it would be considered a large HMO and as a result require an HMO license to comply with government regulations.  

Why could a student let be the investment property for you?

Similar to regular HMOs, student lets also require more maintenance but can offer higher rental yields due to the multiple occupants. It is important to remember that having 5 or more tenants would mean you require an HMO license which is an administrative task that would have to be undertaken. Landlords who are actively pursuing the creation of a portfolio or looking to diversify their portfolio and are willing to put in the time and effort to manage these properties are more likely to benefit from the returns from a student let. With universities in regional cities, portfolio landlords can benefit from lower purchasing costs while still receiving high monthly returns.

Why wouldn’t you invest in student lets?

If you hope to see high capital appreciation from your property and want a more hassle-free investment experience, student lets might be an option you stray from. The turnover of tenants in these properties means more time and costs are lost to the letting process; there is also generally more maintenance and cleaning effort that goes into this form of buy-to-let as students are only moving out of their family homes for the first time and less likely to take care of the space. Both of these factors can make this investment a more tedious process.

Short-term lets

What is a short-term let?

Short-term lets are typically rental agreements that last under six months, these can be residential short-term lets which sit around the six-month mark or holiday lets which are more likely to be offered to tenants for a few weeks. Either way, before investing in and arranging finance for a short-term let it is important to speak to your lender to make sure how you intend to let out the property aligns with their mortgage agreement and that you are meeting the tenancy period they allow. 

Why could short-term lets be the investment property for you?

Short-term lets, especially holiday lets listed on platforms like Airbnb, offer landlords higher returns. However, the initial costs of setting up holiday lets are often higher as the property needs to be entirely furnished and all bills are paid by the landlord. Again, the required management of a property such as this makes it most suitable for portfolio landlords and landlords using rental payments as their primary source of income. These sorts of lets are a great way to diversify your property portfolio. 

Why wouldn’t you invest in short-term lets?

When it comes to short-term holiday lets, there are periods of the year when the location and property are more in demand than others, creating more varied monthly returns from your investment. If having a continuous additional stream of income is your primary property investment goal, short-term lets may not be for you. The same goes for landlords who are not looking to build portfolios and would rather benefit from stable returns and capital appreciation.

Need help finding the right property?

At GetGround we combine property data and human expertise to find the right property for you. Interested in searching for buy-to-lets? Browse our marketplace of vetted property developments and off-market properties. But, if you’re still unsure about what property type aligns with your investment goals, you can speak to us directly. Book in a call to find out more.