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What Is The Meaning of Buy to Let?

Property Investment Basics

Buy-to-let refers to buying property so you can make money from it by renting it out to tenants.

This is a wide-ranging term that refers to any kind of property being sold for the express purpose of being rented, as well as anyone looking to buy a property so they can become a landlord.

You may also see buy-to-let being referred to as buy-to-rent, but in essence, both terms have the same definition.

 

More About Buy to Let

Buy-to-let property comes in all shapes and sizes, most commonly being flats designed for tenants to rent out. It can also be houses rented out by tenants, either in a houseshare or House of Multiple Occupancy or a smaller number of tenants.

Investors earn returns from buy-to-let properties through rental income collected from tenants, as well as the capital growth that their property sees over time as it rises in value.

This means buy-to-let stands out from other investment classes, as there are multiple ways of earning income at the same time.

There are three main types of buy-to-let property you are likely to see:

  • Residential buy-to-let – This is where investors own residential properties such as houses and flats, renting them out to tenants so they can live there full time.
  • Student buy-to-let – Student property is different from residential buy-to-let, as tenants will only live in the property for part of the year, but there is consistently high demand and lower risks of void periods.
  • Commercial buy-to-let – Businesses need space to operate, and commercial buy-to-let properties fill this need by renting space to companies to use as offices, storefronts, restaurants or other ventures.

There are various subsects of these main categories of buy-to-let property, such as Houses of Multiple Occupancy (HMOs for short). This type of buy-to-let property is one where multiple tenants live in the same property, sharing communal spaces like bathrooms and kitchens while individually paying rent for their room. This can be student buy-to-let or residential buy-to-let.

Any property on the market can be used as a buy-to-let property, with some being sold for this express purchase and others being converted into one by their owners.

Amongst those properties being sold as buy-to-let, you may find some being classed as off-plan properties. These are properties being sold whilst still in development or construction.

As mentioned earlier, you earn returns from buy-to-let property in two different ways.

  • Rental income – This forms the monthly payments you receive from tenants in your property. This gives you a consistent cash flow of passive income, which you use to repay any mortgages you have borrowed as well as for any work you need to make on the property.
  • Capital appreciation – This represents the rise in value you will see from an investment property over time. You won’t see the money you make from this until you sell your buy-to-let property, but this will likely be a substantial profit.

With this in mind, it is clear to see why buy-to-let is becoming a popular method of investment.