Investing in a buy-to-let property can be an effective way of securing some additional income. But becoming a landlord for the first time can be a daunting prospect.

Much like running a business, the knowledge and skills needed to be a landlord are considerable and it is important for anyone considering a move into the buy-to-let market to be well aware of the law and their responsibilities to tenants.

If you are still unsure about a move into the world of buy-to-let, the following questions could be a good starting point:

What is the demand for rented accommodation in the area you are considering investing?

It might seem obvious but there’s no point buying an investment property if no one wants to rent it. You should think about what will appeal to tenants; this may be very different from what appeals to you and in an area you’d never live yourself.

RightMove suggests areas where there are improvements driven by companies moving in, new transport links or government regeneration money or up-and-coming areas, which may be close to another attractive area.

How much rent could you expect?

It’s important to calculate how much rent you are likely to receive to make sure you can afford a second property. A buy to let calculator tells you the amount of rent you will need to charge in order to be approved for a buy to let mortgage but this is in essence the same as the achievable rent. The vast majority of buy to let mortgage providers will have a calculator tool somewhere on their website.

Can you afford other costs?

Don’t forget that as a landlord you will be responsible for repairs, letting expenses, advertising and professional fees.

How much of the year can you afford to have the property vacant?

If you were struggling to find a tenant and your property was lying empty, you’d still be liable for mortgage repayments as well as council tax, water rates, electricity bills and insurance. Making sure you buy in good location and keeping your property in a good state will help reduce the amount of time it is vacant.

What’s the potential investment return?

It’s important to be realistic – expect lower short-term gains and higher long term profits. If house prices fall, the value of your property is likely to fall as well. You may not be able to sell it for as much as you hoped. Also, if you have to sell and the sale price doesn’t cover the whole mortgage, you’ll have to make up the difference.

What market will you be entering?

The type of property you own and its location may determine the market you aim for, rent levels and will require different standards of letting.

Broadly speaking there are four markets:
1. renting to people on benefits
2. renting to students
3. renting to working tenants
4. renting to professionals & higher end market.

Can you manage the property on your own?

If you know your responsibilities and best practice in managing properties then this option saves you the cost of an agent, but will require a considerable investment in time.

Have you got the necessary permissions?

Any property owner who has a mortgage or is not a freeholder will need to secure the necessary permissions before renting their property. If you propose to let a mortgaged property, or a room within it, you will require permission from your mortgage lender, so check first.

What other costs are involved?

Letting residential property is a business and as with any other type of business the key to survival is maintaining a healthy cash flow. Unless you are running a hotel, guest house, B&B or furnished holiday lets the Government can impose taxes at every stage of ownership. E.g. Stamp Duty Land Tax, Income tax on rental profits, VAT on expenditure incurred on maintenance of the property, Capital Gains Tax and Inheritance Tax.

The National Landlords Association recommends the following tips for prospective landlords, to ensure they comply with regulations:

• Provide a proper tenancy agreement, usually an Assured Shorthold Tenancy (AST) agreement that you and the tenant sign. This will outline the length of the tenancy, amount of rent, when it is to be paid, and deposit details.
• Carry out full background checks on potential tenants to check they are in a position to meet their rental commitment.
• Protect the tenant’s deposit with a government-authorised scheme, such as mydeposits
• Create an inventory describing the condition of the property in detail, along with the furnishings
• Have gas appliances checked annually by a Gas Safe registered engineer and provide the tenant with a Gas Safety Certificate
• Take out comprehensive landlord insurance to protect your property
• Ensure urgent repairs are fixed promptly. Use reputable tradesmen that you know and can trust to tend to the property at short notice.