For anyone thinking of buying rental property, Glasgow is a good choice. With a large population of young professionals and students, there is high demand for the right properties in areas across the city.
Buying rental property is generally a sound idea, if you’re looking to invest. Rents across the UK are rising and demand is high, meaning you have a good chance of finding tenants for your property. This is particularly true of Scotland. According to the property website Citylets, year-on-year rents rose by more than 8% last quarter, with stock levels at an historic low.
If you’re looking ahead, property prices usually rise over time, meaning that you’re likely to see a return on your investment in the long term.
How to buy rental property in Scotland
People who are new to buying rental property may feel a bit daunted by the process. There’s no need to be. As long as you take a methodical approach and think through your project carefully, renting out property the first time can be a rewarding way to boost your income. To help you, we look at the seven key things to consider before buying rental property in Glasgow.
1. Decide on a location
As with any property investment, when it comes to buy-to-let, location is key, so give this some thought and do plenty of research. As we’ve said, Glasgow is a great choice whether you live in the city or are looking to invest further from home. If you’re considering Glasgow, read our blog for an overview of the city’s best areas for buy-to-let, depending on your target tenant. There is plenty of information on the Citylets website too.
You’ll also need to consider what type of landlord you want to be – whether you’ll be hands or happy for a letting agent to manage the day-to-day running of the property. This will influence whether you look for a property close-by or further afield.
2. Decide on the type of property
Think first about the tenants you’re targeting, and your budget as both of these factors will influence the type of property you’re looking at. If you’re thinking of renting to students, look for flats or houses in popular student areas with good access to the universities, if young professionals, you’ll probably be after modern or refurbished flats close to amenities and transport. Families, on the other hand, will be after larger properties with outdoor space close to good schools.
3. Calculate your monthly rental income
Get an idea of the going rate for properties like the ones you’re considering using property portals – Citylets, Rightmove and Zoopla. Working out the costs associated with buying the property, alongside your likely rental income, is also crucial to buying rental property.
Factor in all the costs of buying including land and buildings transaction tax (LBTT) in Scotland (stamp duty in England). Remember, you’ll pay a higher rate if this is an additional property. You’ll also need to consider the cost of getting the property ready to rent out as well as ongoing maintenance costs, letting agent fees and landlord insurance, with contingency in place for any void periods.
4. Finance your rental project
If you need a loan to finance your project, you must take out a buy-to-let mortgage. It’s worth finding out more about these types of loans, and getting an idea of costs before you start. Some key things to know about buy-to-let mortgages are that you’re likely to pay a higher rate of interest than with residential loans. You will also need a bigger deposit – typically 25% or more. The loan is likely to be interest only rather than repayment, meaning you’ll only cover the interest on the loan, paying the balance when the property is sold.
Your lender will expect you to demonstrate that your rental income will cover all your costs and you’ll be able to meet your monthly repayments. They may require your rental income to be up to 45% higher than your mortgage payments, although they may take your other income into consideration too.
5. Tax on rental income
Another cost you’ll need to factor in is income tax on rental income. If you aren’t self-employed already, you will need to register for self-assessment and file an annual tax return. Read more about taxes and landlords in Scotland in our blog but, briefly, you’ll need to pay income tax on your profit at the rate for your tax band. You can claim for certain allowable expenses, however, be aware that you can no longer claim tax relief on your mortgage interest at the rate you pay income tax – you can instead claim a tax credit at the 20% basic rate of tax.
If you are looking to buy rental property as a capital investment, you should also be aware that you’ll need to pay capital gains tax on the money you make from the home when you come to sell it.
6. Finding tenants
In spite of high levels of demand, finding the right tenants, who will pay their rent on time, look after the property and stay for the long term, takes thought and preparation. To attract interest, make sure you refurbish and furnish the property to a high standard, with your target tenants in mind.
You should also carry out certain referencing checks before you sign up your tenants, to make sure you’ve done everything possible to check they can afford the rent and are a responsible and trustworthy person. Read more in our blog on finding the right tenants for your rental property.
7. Managing your property
Once you’ve bought a rental property and found tenants, you’ll be responsible for the ongoing management. This includes maintaining the home, dealing with repairs and ensuring that you comply with all your legal responsibilities. You’ll also need to have the correct landlord insurance package in place. Many of your duties can be handled by a letting agent or property manager – you’ll need to decide if this is the right move for you and the level of service you need.
If you’re thinking of renting out property for the first time in Glasgow, we’d love to help you along your landlord journey. Talk to us about everything from getting started to finding the right tenants. We can also show us our selection of Glasgow properties that are perfect for buy-to-let.