How to start investing in rental properties

Are you ready to take a leap into the property renting world but unsure how to start investing in rental properties? While it may be a dream becoming a reality for many, taking the first steps towards renting out property can be confusing.

Embarking on the journey into investing in rental properties can be exhilarating but a little overwhelming. To prepare to be a landlord, you will need to research the property market, set clear investment goals and arrange appropriate financing. Similarly, if you’re asking how do you build a property portfolio, the same basic principles apply.

While the prospect of generating passive income and building long-term wealth through rental properties is appealing, it’s crucial to approach this venture with a realistic understanding of the commitments and risks involved.

This comprehensive guide about how to start investing in rental properties will reduce any worry or stress you may be experiencing as you prepare to make the leap. It should also answer another common question for newbies: how do you build a property portfolio? Let’s find out.

First steps on how to start investing in rental properties

Deciding to invest in rental properties is a common way to build wealth and generate some passive income, but knowing how to start investing in rental properties is key. It’s essential to build strong foundations at the start of your journey, especially when asking the question: how do you build a property portfolio that lasts for a significant period?

Whether you’re a beginner or looking to expand your property portfolio, taking the time to understand how to start investing in rental properties can help you avoid headaches and stress. From researching local markets to assessing your financial readiness, these initial steps pave the way for financial growth from property investment.

Researching the local market

If you’re wondering how to start investing in rental properties, a good place to kick off is by researching the local area. It is vital to get an understanding of the local market. It’s ideal to rent out to the right tenants, be in an area where growth is possible, and follow market trends to maximise your property investment.

Understanding the tenant type

Understanding the type of tenants you could rent your property to is crucial. For example, are there lots of young families in the local area? Perhaps there’s an elderly population looking to rent during their retirement years. 

If there is a university located nearby, there’s likely to be a lot of students in the area who need somewhere to live while they are studying. If this is the case, then you could target your entire investment towards students and, therefore, want a property that has a large number of bedrooms. The research will also allow you to learn whether you will need a furnished or unfurnished property. 

Emerging neighbourhoods

Buying a property within an area with positive value growth will be ideal. You can carry out some research online that will allow you to discover whether properties in the area are increasing in value, flatlining or decreasing in value.

Sometimes, there might be a clear trend, but it’s worth assessing whether that trend will continue or not. Perhaps there are plans to create jobs in the local area, new transport links, or new builds with the development of amenities like schools, shops and restaurants.

Rental yield data

Whilst it won’t be possible to work out your own rental yield until you’re ready with a property, you can get a good idea by researching. A good rental yield is usually considered to be 7% or more. 

In 2024, Zoopla completed a study of the cities in the UK offering the highest rental yields. These are: 

• Sunderland
• Aberdeen
• Burnely
• Dundee
• Glasgow
• Middlesbrough
• Blackburn
• Hull
• Newcastle
• Liverpool

Setting clear investment goals

Learning how to start investing in rental properties can open the door to long-term financial growth. Clear investment goals can help you monitor the financial growth of your investment throughout the years and perhaps decades. 

But it can also provide guidance on whether or not a purchase makes sense. It will help determine whether or not the step will take you closer to your goal. It will also act as motivation to continue pushing when barriers appear. 

Arrange appropriate financing

Ensuring you have the appropriate funds is a key foundation for your journey.  So how do you build a property portfolio with solid financing?

Specialist buy-to-let mortgages are available, and sometimes, investment loans might be required. Buy-to-let mortgages typically require a larger deposit (often 25-40%) compared to residential loans, and interest rates might be slightly higher due to the lender’s risk assessment. 

Don’t let that put you off; you can find a deal that suits your budget by improving your credit score, saving purposefully, and shopping around with UK lenders or mortgage brokers.

Understanding relevant regulations

When gaining an understanding of how to start investing in rental properties, it’s imperative to understand the relevant regulations. There’s a myriad of regulations to be mindful of when renting properties, some of which you will only need to understand in full when certain situations arise. At the start of your property journey, there are two key regulations to be mindful of.

Landlord registration requirements

As of early 2025, England has no nationwide mandatory landlord registration scheme. However, the Renters’ Rights Bill (previously the Renters’ Reform Bill) proposes a national Property Portal that may change this in the future. Renters’ Rights Bill is likely to come into force in Spring 2025. 

Currently, registration requirements in England depend on local authority rules. Landlords should check with the local council in the area surrounding the property. However, landlords must obtain a license under the Housing Act 2004 if renting out an HMO. 

There are different situations elsewhere in the United Kingdom. In Wales, landlords are legally required to register with Rent Smart Wales under the Housing (Wales) Act 2014. In Scotland, landlord registration is mandatory under the Antisocial Behaviour etc. (Scotland) Act 2004. 

In Northern Ireland, the Landlord Registration Scheme, established under the Private Tenancies Act (Northern Ireland) 2022, mandates that all landlords renting properties under private tenancy agreements register with the Department for Communities.

Tax obligations

For the tax years 2024-25 and 2025-26, landlords will be subject to a 20 per cent tax rate on buy-to-let income between £12,571 to £50,270. The threshold for the higher rate kicks in at £50,271, beyond which any rental profits are taxed at 40 per cent.

Landlords will be subject to a 20 per cent tax rate on buy-to-let income between £12,571 and £50,270. The threshold for the higher rate kicks in at £50,271, beyond which rental profits are taxed at 40 per cent. The third and final rate is 45 per cent tax. This is charged on income over £125,001.

Stamp duty

Landlords should know the additional stamp duty charges when buying second properties. The surcharge was increased to five per cent in October 2024. Changes to the threshold will take place in April 2025. The government has a stamp duty calculator so you can determine how much you will need to pay if and when you have a rough idea of your budget/property purchase price.

Prepare for ongoing expenses

Exploring how to start investing in rental properties can cause some financial concerns. It’s worth being aware of some common payments you may have to make to check if the whole venture is affordable. This is a key factor when considering how do you build a property portfolio sustainably.

This can include certain bills, depending on whether you intend to include them in the tenant’s monthly rent or let the tenant pay directly themselves.

Repairs and maintenance

Wear and tear is inevitable in any property. Landlords should prepare to cover the costs of any repairs and maintenance required due to wear and tear. In addition, sometimes unexpected things can happen. Major repairs may be needed, which might be costly for the landlord. It’s worth building a reserve fund for when things suddenly go wrong.

Insurance

Insurance is not a legal obligation when renting property, but it’s still very helpful. If something goes wrong suddenly, insurance may help protect your investment. It should help cover some of the costs required, though it comes with a monthly expense. Some mortgage providers will only lend money if there is some kind of landlord insurance in place.

At CIA Landlords, we have the expertise to find the best landlord insurance deals that are suitable for your needs as a landlord, which could help you save on costs. Contact us today at 01788 818 670.  

Potential void periods

In an ideal world, tenants will constantly occupy your property. However, vacancy periods can happen, and landlords should prepare for lengthy gaps while waiting for new tenants. During this period, there’s no rental income to offset expenses. It’s ideal to save 1-2 months’ worth of expenses to protect against these gaps.

Professional advice

Certain situations can crop up where landlords will need to use professionals to ensure they go about it the right way. This can include situations at the start of the investment, such as using letting agents or financial advisors. These are sometimes costly.

Moving forward with confidence

Now you have an understanding of how to start investing in rental properties, you’re set to build your property portfolio. Despite some seemingly overwhelming steps, you’re already well on your way to growing a profitable rental business that generates steady income and long-term wealth. 

At CIA, we offer a range of advice articles to help you during your property investment journey and get you through some of the challenges. After a short period of time, you’ll be well acclimated to the property investment world and reaping the benefits. 

To further protect your investment, secure landlord insurance with CIA Landlords. Contact us at CIA Landlords to find out more. We’ll compare landlord insurance quotes and find you the cheapest deal. Get a quote today, or give us a call at 01788 818 670 to speak to one of our friendly advisors.