From selecting the right location that fits your tenant profile to choosing the right mortgage plan - here's a simple guide to maximise your returns as a buy-to-let investor in London.

1. Know your tenant profile

Before investing in a property, every landlord must have a fair idea about the profile of tenants they wish to let their property to. Whether you decide to let it out to students, professionals or families, every tenant group has a specific set of needs and location considerations. For example, if you are letting out to students, investing in locations like Camden and Tower Bridge is a good idea. Similarly, if working professionals is what you're looking for, areas like Canary Wharf and Wembley are ideal.

2. Determine your investment goals

Whether you want to rent a property to sell it after recovering its initial cost, profit from growing prices or intend to hold on or move into the property at a later stage, there are many ways you could derive value from a residential asset. While your investment goals are your personal choice, determining them in advance can help devise the right strategy.

3. Select the right letting agent

Letting agents are people who speak to tenants and landlords daily and understand the pulse of the rental market. If you plan to manage the tenant yourself you may need to ensure you live nearby to resolve any issues. However, choosing an expert letting agent like Benham and Reeves allows you to access a wide range of London neighbourhoods remotely from India or any other corner of the world.

Letting agents can also help landlords get a better understanding of rental yields and investment potential across neighbourhoods to find the right property that matches the expected tenant profile.

4. Rental income vs outgoings

In addition to the mortgage payments on a property, landlords have many other expenses such as repairs, maintenance, insurance and council taxes. As a landlord, you need to be aware of these payments and your rental income should be able to offset most of these for the investment to be profitable in the long run. Speak to your lettings agent and research the asking prices for similar properties in the area through online listing portals to get a fair idea of average rents.

5. Work out the net rental yield

To analyse the actual profitability of your BTL investment calculate the net rental yield it offers after deducting the total expenses incurred. One way to do this is by subtracting the total costs from the potential annual rent and dividing the result by the property's value. Multiple that figure by 100 to get the net rental yield in percentage.

6. Choosing the right BTL mortgage

Unlike buying a home to live in, BTL mortgage terms differ and the amount you can borrow depends largely on the expected rental income from the asset. While the exact eligibility terms may vary from one lender to another, it is important to know that BTL mortgages usually entail a higher deposit requirement (25% or more) with higher interest rates than residential mortgages. Borrowers may also require rental income to exceed mortgage payments by a fixed margin to sanction the amount.

As a BTL landlord, the mortgage terms you choose, whether fixed rate or variable interest payments and repayment methods like interest-only, repayment or both will depend on your investment strategy and impact net returns.

7. Tenancy contracts and deposit schemes

Renting properties in the UK is subject to strict laws and requires meticulous paperwork and registrations. Tenancy contracts list all the terms and conditions that apply to landlords and their tenants to avoid ambiguity and disputes.

Every landlord has the right to ask for a deposit that can be used against damages caused to their property at the end of the tenancy. However, this deposit should be protected within a transparent deposit scheme recognised by the government. Average deposits in London vary between six to eight weeks of the asking rent.

8. Safety regulations and landlord responsibilities

Renting out a property in the UK requires landlords to adhere to several regulations that ensure the property is safe for tenants. From gas and electrical safety certificates to installing smoke alarms and carbon monoxide detectors in rooms with fuel-burning devices, landlords have to comply with several regulated safety measures. Providing EPC certificates, safety exits and repairs of appliances and furniture are all responsibilities of the landlord.

9. Tenant referencing / background checks

As a responsible landlord investing your time and money, you deserve an equally responsible tenant, who pays rent on time and takes good care of your property. Thorough tenant referencing done by a reputed letting agent can help you find the right tenant who has a clean tenancy record and a legal right to rent in the area where your property is located.

10. Stamp Duty & Income Tax

UK properties purchased for renting out need to pay a higher rate of Stamp Duty Land Tax (SDLT) to HMRC. The rate of Stamp Duty collected varies depending on the property's value.

Rental income above a threshold is taxable in the UK and landlords need to inform HMRC and report annual rental income each year. Although landlords are allowed to deduct allowable expenses, there are several restrictions and landlords need to be updated about them.