Buy-to-Let Due Diligence: Check the Rent Before You Buy
October 18, 2021
Buy-to-let due diligence isn’t only about finding hidden problems. Sometimes checking the documents reveals something better than you expected. The important thing is that you find out before committing, rather than build the entire purchase around information nobody has properly verified.
That happened during our purchase of a flat in 2021. We’d been told the monthly rent was £750. When my wife worked through the conveyancing documents, the tenancy agreement showed £900. The difference improved the figures, but it also exposed a weakness in the information we’d initially relied on.
My October 2021 video used a dramatic title about the estate agent getting it wrong. The explanation was more ordinary: rent and the seller’s description of profit had become confused. It was a useful reminder that people make mistakes and that the buyer still needs to check the numbers.
You can also watch the original video about the flat’s rent discrepancy.
What we’d been told and what the documents showed
The purchase price was £160,000. We had assessed the deal using rent of £750 a month and had also used that figure in the mortgage process. Then the tenancy paperwork showed that the contracted rent was actually £900.
The seller explained that the £750 figure referred to what they described as profit after certain property costs, rather than the rent paid by the tenant. Somewhere between the seller, the agent and us, the meaning of the number had changed.
That distinction matters because the seller’s remaining income isn’t automatically the buyer’s remaining income. Their borrowing, management arrangements, expenses and tax circumstances may be different. I need the underlying figures so I can calculate the investment on our own basis.
In this instance the discrepancy was favourable. We were assessing a higher rent than we’d originally understood. But it could just as easily have gone the other way, and the process should be capable of catching both outcomes.
My wife found it by reading the detail
In the video, I explained that my wife handled much of the practical property administration, including the mortgage applications, solicitors and paperwork. She identified the discrepancy and followed it up rather than assuming the documents must agree with what we’d been told.
That work is easy to overlook when discussing property investing. The interesting part of a video may be the purchase price or projected return, but the less visible checking can have a direct effect on the decision.
I don’t think the lesson is that every buyer must personally become a solicitor. The lesson is to engage with the information, understand the commercial assumptions and ask the appropriate professional to resolve anything that doesn’t make sense.
A conveyancer can explain legal issues within the scope of their work. The investor still needs to understand whether the figures used in the business case match the evidence. Sending documents to a professional doesn’t automatically validate every spreadsheet assumption you’ve made.
Rent, collected income and profit are different numbers
The contracted rent is the amount specified in the tenancy. Collected income is what actually arrives. Profit then depends on which costs have been deducted and on the accounting or tax basis being used.
Those distinctions can disappear in casual conversation. Somebody says a flat makes £750 a month, and the listener assumes that means rent. Another person might mean the amount left after service charges, while a third might mean cash after mortgage payments.
I’d ask what the number represents before putting it into the appraisal. Is it monthly or weekly? Is it the current contractual amount or an agent’s estimate for a future letting? Are any services included? Does the evidence show the payments are being made?
The tenancy agreement is an important source, but it doesn’t answer every question about payment history or future costs. The documents and records should be considered together, with any discrepancy resolved through the purchase process.
My article on how much profit remains from £1,000 rent explains why a headline rent should never be treated as the amount available to spend.
Rebuilding the historical purchase calculation
The figures I used in the video included a £40,000 deposit, approximately £4,750 for stamp duty and around £2,000 in fees. That gave a total initial cash requirement of £46,750 against the £160,000 purchase.
These were the historical working figures presented in the discussion. The stamp-duty amount shouldn’t be reused as a current calculation, and even the original estimate needed confirmation against the actual completion statement and the buyer’s circumstances.
A 75% mortgage on £160,000 would be £120,000. That establishes the broad borrowing amount, but the actual mortgage offer determines the rate, fees, repayment structure and conditions. A general market impression isn’t a substitute for the agreed terms.
For a purchase today, I’d rebuild all of those amounts from current evidence. The value of the case study is the method and the discovery, not an old tax or mortgage figure copied into a new deal.
The rental costs used in the video
For the company-owned example, I allowed roughly £250 a month for the mortgage, £100 for service charge and ground rent, £75 for maintenance and voids, £90 for management and £15 for insurance. Those items total £530.
Against £900 rent, that leaves £370 a month, or £4,440 a year. Dividing £4,440 by the £46,750 initial cash gives approximately 9.5%. That was the basis of the roughly 9.49% return discussed.
This was a simplified pre-tax cash-flow forecast. It wasn’t a completed year’s accounts, and it depended on the allowances being adequate. It also shouldn’t be read as a promise that a flat bought at the same price now would generate the same result.
The alternative personal-ownership illustration used a lower approximate mortgage cost of £160 a month. Holding the other costs constant would leave £460 monthly, or £5,520 annually, around 11.8% of £46,750 before the relevant tax treatment.
That comparison described different financing assumptions, not a conclusion that one ownership structure always produces the better after-tax result. Ownership decisions need a wider assessment than one monthly mortgage estimate.
An occupied property still needs a void allowance
During the video, I noted that a tenant was already in place. That reduced the immediate need to find an occupier, but it wouldn’t justify assuming there could never be a void or interruption in payment.
An existing tenancy can end, circumstances can change and a gap may occur between occupiers. There can also be costs associated with preparing the property for a new letting. Those possibilities need to remain in the longer-term appraisal.
Likewise, a maintenance allowance isn’t a guarantee that annual repairs will equal that amount. Some years may be quiet; another may involve a larger bill. A reserve helps deal with the uneven timing rather than assuming the costs arrive smoothly each month.
I’d want the investment to withstand a less convenient period as well as the first month after completion. Having a tenant at purchase is useful information, but it doesn’t remove the ongoing responsibilities of ownership.
Leasehold costs deserve their own attention
The property was a flat, so service charge, ground rent and the lease were important parts of the assessment. In the video, I said the approximate monthly charge had been checked against the legal paperwork. That was a better basis than relying on a verbal summary alone.
I’d also want to understand what the charges cover and whether there are known works or other obligations that could change the cost. A current monthly amount doesn’t necessarily describe every future payment associated with the building.
The lease length mattered to our wider plan. I discussed potentially extending it over the following years and considering a later sale. That was an intention at the time, not evidence that the extension or sale subsequently happened.
The legal rights, process and likely cost of a lease extension should be checked for the particular property and the current rules. It wouldn’t be sensible to assume that an old estimate or a general description settles the position for another flat.
Comparing a flat with a house needs care
Part of the attraction was the difference between the flat’s price and the price of a two-bedroom house in Newbury. I saw a possible opportunity in that gap, alongside the rental return.
But a similar bedroom count or floor area doesn’t make the two assets identical. Tenure, service charges, outdoor space, maintenance responsibilities and buyer preferences can all affect value. The price gap isn’t automatically a discount that must close.
In the video, I discussed a possible future value around £240,000 as a scenario that might make a sale attractive. That was not an achieved valuation or a forecast readers should treat as certain. It was part of explaining the investment idea.
I’d want comparable evidence for the actual type of property being bought. My article on property price versus market value explores why a persuasive comparison still needs to account for meaningful differences.
What I’d check when buying with a tenant in place
I’d start by making sure the key tenancy information is consistent: the rent, the occupiers, the agreement and the records supporting the income. If a figure differs between the sales particulars, legal documents and mortgage application, it needs resolving.
I’d then ask the conveyancer to explain the tenancy position and the obligations transferring with the property. The historical video referred to a two-year agreement running into 2022; that isn’t a template for the tenancy rules or possession position applying to a purchase today.
I’d also verify the costs that are central to the appraisal, particularly recurring leasehold charges and any information about planned works. The aim is to replace assumptions with evidence wherever reasonably possible before exchange.
The government’s guide to buying a home explains the wider role of legal checks and the purchase process. For a tenanted investment, I’d make sure the advisers know the intended use and the specific questions that need answering.
Our buy-to-let deal calculator provides somewhere to test those assumptions, including rent, management, maintenance and voids. I’d use independently checked inputs and compare a weaker rental scenario. The output is an illustration before tax; entering an optimistic rent doesn’t make that rent achievable.
Correct the whole decision when a figure changes
Finding a better rent is encouraging, but I’d still update the calculation properly. A change can affect management fees if they are percentage-based, finance assessments or other parts of the appraisal. It isn’t always enough to add the difference directly to the old profit figure.
I’d also make sure relevant advisers and the lender receive accurate information through the proper process. A favourable discrepancy doesn’t make inconsistent documents harmless. Everyone needs to be assessing the same underlying facts.
The lesson from this purchase was simple: don’t rely on one verbal number, even when it comes from somebody involved in the transaction. Check what it means, compare it with the documents and resolve the difference before treating it as fact.
If you’d like to discuss how you assess a potential buy-to-let, book a free 30-minute call. You can also explore the Starter Club or find out about Done For You.