24th August 2025

Investing in rental property for beginners

Are you thinking about becoming a landlord for the first time to bring in some extra income? Investing in a buy-to-let property can be a smart way to build your wealth through rental income, but in order to be successful, it pays (literally) to understand every aspect of the investment. Beyond the main two steps of, (1) buying a property and (2) letting it to tenants,  it’s important to understand how buy-to-let investments work, what costs to expect, and the legal responsibilities of being a landlord before you figure out if it’s the right route for you. 

Our beginner-friendly guide explains everything you need to know about buy-to-let property, from finding a lucrative opportunity and navigating your  mortgage options and tax requirements, all the way to finding the right tenants and managing your property in the long term.

What is a buy-to-let property?

A buy-to-let property is a home that is purchased specifically with the intent to rent it out to tenants. This could be anything from a city-centre flat for young professionals, to a family house in the catchment area of some great schools, or even an entire block of apartments suitable for housing a wide range of ages and occupations. No matter the type of property, or your tenancy target, the ultimate goal of buying to let is to generate a revenue stream from the rent collected, ideally whilst also benefiting from the long-term property value growth.

A key factor to measure is rental yield, which is the annual rental profits compared to the property’s purchase price. This yield is influenced by the condition of the property, but primarily determined by the location and whether the area is sought after or in high demand. To learn more about which areas perform best, we’d suggest reading our ‘best buy to let areas in the UK’ blog, or to learn more about rental yield refer to our ‘what is a good rental yield in the UK?’ blog.

Buy-to-let guide: what to look out for when purchasing

The first thing you need to think about when deciding whether to become a landlord is the property you intend to take over. Not all properties are suitable for buy-to-let investments. If you want to generate income, it’s important that you make your decision based on strategy and logic. To do this, you need to consider the following:

• Budget: Your costs should not be more than your profits. Factor in things like insurance, immediate remedial or repair work, mortgage rate interest if applicable, cost of buying, and potential income.
• Tenant demographic: Students, families, and couples will all have different needs, this needs to be factored into your purchase decision. Students may be happy with a small city centre studio, but a family of four will want a decent-sized house with schools nearby.
• Rental yield: Look for areas with strong demand for rentals and growth potential to narrow down your search.
• Area: Check what amenities and transport links are available which may make a property more attractive to tenants.
• Maintenance costs: New builds are usually more expensive, but require less maintenance costs as they’re already built to current regulation standards. Older buildings may need more fixes and repairs to meet regulation. However, they can be cheaper to buy. 

Financing your buy-to-let with a mortgage

If you’re not a cash buyer or have inherited a property, you can obtain a buy-to-let mortgage. It is important that you do so, as you cannot finance your purchase with a regular mortgage if you intend to let it out. 

There are also a few hoops to jump through, because buy-to-let mortgages are considered to be a higher risk for lenders than regular residential mortgages. In order for the lender to be more assured of the success of their investment, you need to meet a few extra stipulations to prove that your investment is sound. These rules will be different depending on your lender, but the following should give you a guideline: 

• Age restrictions: Many lenders have a maximum age requirement, this is usually set at 75, but it could be lower.
• Credit score: You need to have a good credit rating and a spending history that shows you don’t borrow too much.
• Proof of income: Some lenders require evidence that you have income aside from rental earnings. 
• LTV: An LTV (loan-to-value ratio) of 75%, which means you’ll have a minimum of 25% deposit to put down on the mortgage.
• Rental income vs mortgage repayments: Your rental income should cover at least 125% of your mortgage repayments.

Can you live in your buy-to-let property?

Generally, no. Most lenders will require you to prove you own your own home and will prohibit you from living in the building if you’ve taken out a buy-to-let mortgage. Doing so without approval could breach your contract. However, once the mortgage is fully paid off, you’re free to live there or continue renting it out. Some people choose to be live-in landlords at that point, especially if they own a block of flats and wish to occupy one of the units. With that being said, you can check with your lender to see if they allow it, and if you receive permission then you can live there whilst you pay off the mortgage.

What responsibilities do you have as a landlord?

It is important that potential landlords are not misled into thinking that purchasing a buy-to-let is a form of passive income. It is not a passive job, and comes with lots of responsibilities that you must adhere to. Understanding your full legal responsibilities is paramount as this will keep yourself and your tenants protected. To help you understand whether you’re ready to take on these commitments, we’ve compiled a list of things to be considered: 

• Registering as a landlord: Some local authorities mandate landlord registration before advertising properties, especially in Scotland, where it’s always legally required with strict penalties for non-compliance.
• Leasehold and freehold: If your property is leasehold, you must have permission from the freeholder to rent out the property.
• Checking tenants: In UK law, landlords renting to someone without the right to rent in the UK can face a fine of up to £3,000 per illegal tenant and up to five years in jail. Always keep evidence of your tenant’s right to rent.
• Tenant documentation: Before your tenants move into the property, you are legally obliged to provide them with the government’s ‘How to Rent’ guide.
• Tenant deposit protection: It is your responsibility to protect the deposit paid to you by your tenant(s) within 30 days of receiving it by putting it into a governmentally approved tenancy deposit scheme.
• Fire safety: Learn and adhere to fire safety regulations. Ensure clear escape routes, compliant fittings, and working smoke alarms on every floor. Maintain these alarms and install carbon monoxide alarms if fuel-burning devices are present.
• Energy performance test: Private landlords must provide all tenants with an energy performance certificate (EPC). These tests will remain valid for ten years. Properties in Scotland must have an EPC in place before advertising, and a physical copy of the certificate must be displayed within the property.
• Gas and electric: Landlords must conduct annual gas safety inspections and provide certificates to tenants. Electrical safety standards must be met at tenancy start, with the EICR report given to new tenants. HMOs require electrical fitting safety tests every five years, while Scotland mandates an EICR every five years.
• Repairs and maintenance: Landlords are responsible for ensuring properties are in good condition before tenants move in and maintaining that condition throughout the tenancy. In Scotland, properties must meet the Repairing Standard (basic repairs like being wind and watertight, and working amenities) and the Tolerable Standard (addressing issues like damp, poor ventilation, and safety breaches), as per the Housing (Scotland) Act 2006.
• Tax returns: You need to declare your rental income and file a tax return, and you must complete it accurately.
• Tenant conflict: Being a landlord involves tenant management such as resolving disputes, collecting unpaid rent, serving notices, and handling maintenance. If this isn’t your strong suit, a property management agency can assist with difficult tenants, though this incurs extra costs.

What taxes are associated with being a landlord?

The last thing you’ll need to think about is the taxes you’ll have to pay on a buy-to-let property. These are explained below, and will need to be factored into your budget.

Stamp Duty Land Tax (SDLT) & Surcharge for Additional Properties

In England and Northern Ireland, the SDLT surcharge for second homes, buy-to-lets, and holiday lets has increased to 5%, effective from 31 October 2024. This is on top of the standard SDLT rates paid on buildings, based on the property’s price which have also recently changed.

For example, including the surcharge, on a buy-to-let property priced at:

• £0 – £125,000 you’ll pay 5%
• £125,001 – £250,000 you’ll pay 7%
• £250,001 – £925,000 you’ll pay 10%
• £925,001 – £1.5m you’ll pay 15%
• £1.5m+ you’ll pay 17%

You can read more about SDLT on our dedicated blog to familiarise yourself with the recent changes which came into effect in April 2025.

Income tax

Since renting will generate an additional income source for you, you will have to pay income tax on your earnings. You are permitted a £1000 allowance, but as a landlord, you will likely generate significantly more than this and the surplus is taxable under your normal income tax bands:

• Basic rate: 20%
• Higher rate: 40%
• Additional rate: 45% 

Capital gains tax

If you decide to sell your rental property at any point, you’ll be charged Capital Gains Tax. The amount you have to pay will be determined by your personal income and the profit from the sale. The annual CGT exemption is now down to £3,000 (a reduction from previous years) and sits at 18% for basic-rate taxpayers and 24% for higher/additional-rate taxpayers. Refer to our blog ‘what you need to know about Capital Gains Tax’ for more detailed information.

So, are buy-to-lets worth considering? 

Despite all of these considerations, which we know can seem a little overwhelming at first, this type of investment is still a viable way to generate an additional revenue stream and can be quite lucrative if it’s done properly. By choosing the right property, securing a suitable mortgage, and understanding your responsibilities as a landlord, you can make buy-to-let work for you.

If you want to make the process a little easier – why not go to auction? With SDL Property Auctions, we make transactions easy and stress free, and property auctions are a popular way to find buy-to-let investment opportunities.

Many auction properties also already have tenants in place, allowing landlords to start earning rental income immediately. Auctions also provide access to a wider variety of properties at competitive prices. If you’re ready to explore investment opportunities, check the latest buy-to-let properties at auction to find your next investment. Browse through our Timed Auctions and Auction Events to see our available properties, or contact a member of our team for further information.