How Much Rent To Charge On A Buy-To-Let Property?

One of the things that makes buy-to-let such an attractive investment is that you can control, to a certain extent, how much money you make from it.

In that respect, choosing how much rent to charge on a buy-to-let property is a delicate balance of covering your costs and making a profit–ideally more than what you’d be making in an ISA or trust fund–without pricing yourself out of the market by being greedy.

The question of how much rent to charge is a big one, probably the biggest on the mind of would be buy-to-let buyers, and while there are a few guidelines/best practices around, there’s no easy answer.

Industry experts recommend setting the rent for your buy-to-let property at 125% of the monthly mortgage repayment, and some lenders will even insist on it.

For that reason, among others, it’s important to take a look at average rents in the area. If rent is around the £400 a month mark for comparable properties and 125% of your prospective monthly mortgage payment comes out at £700, you may struggle to let it. Also an indication the asking price is a ripoff…

On the other hand, setting rent too low can also be a mistake. Besides the mortgage there are plenty of costs to take into account (aren’t there always?), including:

  • Missed rent and possible part payment of council tax when the property may is empty
  • Repairs, renovations etc.
  • Insurance
  • Letting agent fees, if you’re planning to use one
  • Tax on the income you’re making

These can result in some nasty surprises if you’re not prepared for them and, if the rent doesn’t cover them, you’ll have to put your hand into your pocket.

How much rent you’re able to charge also depends on the type of property you purchase. There are at least two big things to consider beyond location, which I’ll talk about another day, when you’re think about purchasing in relation to the level of rent you’ll be able to charge on a buy-to-let:

1. Condition

Taking a punt on a property that needs some updating, which should be reflected in the price, will let you put down a higher deposit and charge up to 150% of your monthly repayments fairly comfortably. Obviously this requires more capital upfront, not to mention patience with any builders you need to get in to do the work.

2. Size

Bigger isn’t always better–minds out of the gutter please! A four-bedroom property might seem like a steal but, if the area is popular with renting young professional couples and miles away from the nearest school, it’s unlikely that you’ll be able to set the rent at a rate to comfortably cover the mortgage.

Above all, make sure you consider buy-to-let as a long-term investment. Because most buy-to-let mortgages are interest only, rent doesn’t need to be astronomically high to snare the 8% return that many experts think is comfortably possible with buy-to-let.

Pricing yourself out of the market because you’re trying to recoup your money too fast is a leading cause of buy-to-let frustration, and empty properties. They say that slow and steady wins the race, and that’s definitely something to bear in mind here.

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