Buy To Let: Our Top Tips For Your Next Property Investment
Whether you are new to buying property for the purpose of letting it out, or are an old hand looking for your next investment, there are some universal things to bear in mind that can help you be more successful. We have put together some top tips to help you get the most out of your investment.
First Step: Set Out Your Goals
Before you even start looking at properties, it is important to think about what your ultimate goal is. Are you looking for high rent yields? Or is your goal to focus on Capital Growth? A high value property is likely to see you getting a lower rent yield whereas if a property is undervalued, your rental return is likely to be higher. Once you know what your goals are, this helps you decide what type of property is most suitable to help you achieve them.
Familiarise Yourself With Tax Legislation
Recent changes in tax legislation for investors in the UK have left many people unsure of where they stand. It is essential that you make yourself aware of these changes and ensure that you adhere to them. The main changes affect tax on rental income, Capital Gains Tax and Stamp duty.
- Tax on rental income: Any income received from rent will be taxed in line with your other taxable earnings. Certain things will be tax deductible, such as maintenance, certain bills, fees and insurance. Since April 2016 you will no longer be able to claim 10% “wear and tear” costs on furnished properties. You will instead only be able to claim for for actual damage or repair. There has also been a cap introduced on mortgage interest for all landlords.
- Capital Gains Tax: When you sell your property, you are liable to pay Capital Gains Tax. Currently you have 18 months to pay this but as of April 2019 this period will reduce to just one month.
- As of April 2016 the tax paid by landlords has increased for any properties owned outside of their own residence.
Please ensure you seek the advice of a qualified tax advisor before you invest in any property so that you can be totally sure you are meeting all guidelines and paying any tax that is required.
Location, Location, Location
You don’t need to know anything about property to have heard this phrase emphasising the importance of location. Location dictates everything from purchase price, rent and desirability. It is important to remember that the most profitable location may not be the most attractive, or the one that you would consider for a personal residence. Consider a location with good transport links. Think about what type of tenant you want and choose a location that would be desirable to them. Locations with high property prices may not have great rental yields, so consider if that is suitable in achieving the goals you set out in step one.
Know Your Role
Being the owner of a property which is being let out comes with certain responsibilities. You need to know what these are and also how “hands on” you are going to be. You will have legal responsibilities to your tenant and will need to make sure their rights are protected as well as your own. This is done using an Assured Shorthold Tenancy (AST) agreement. This will outline how much rent will be paid, when it is due, who is responsible for repairs and all the legalities of increases in rent and due process for eviction etc. It is also your responsibility to protect your tenant’s deposit. There are also many responsibilities that you will have when it comes to maintaining your property, such as safety checks, making sure the water and power systems are in working order and also ensuring the property is in a habitable condition.
All of these responsibilities need to be met, however it is up to you to decide whether or not you want to be in charge of them yourself or if you want to use an agent. Both of these courses of actions have pros and cons. Using an agent means you will free up a lot of time as you won’t need to sort out problems at the property yourself or arrange viewings. However by letting someone else deal with these, you are then liable to pay agent’s fees. If you don’t use an agent then you can personally vet any tenants yourself and you will generally have more control over how situations with your tenants are handled. If you do decide to go down the route of using an agency then make sure you choose one that is well established with a good track record.
Always discuss these choices with your solicitor. They will be able to make sure all contracts are sound and will also be able to fully advise you of the pros and cons of each situation.
Know Your Tenant
Once you have established your responsibilities as a landlord and decided what type of landlord you want to be, you need to put some thought into who your tenants will be. Do you want to rent to students? Couples? Singles? Each demographic has pros and cons you will need to consider. The type of tenant you want to rent to will also influence the type of property you are looking for and the location. For example students will want to rent properties close to their places of study, whereas professionals will want to live somewhere with good transport links and families may look for places closer to schools. Some types of tenants are more reliable than others, established professional couples or older tenants are usually the most reliable, while younger couples are more likely to separate or unemployed people more likely to have financial problems. Knowing your tenant is a hugely important thing to consider when deciding on your investment.
Everyone knows that any investment is not without its risks. It is always a good idea to prepare for the worst, so that you can achieve the best. The main things that can potentially negatively affect your investment will be interest rates, periods of vacancy and building work or repairs to the property. Rising interest rates could increase your mortgage payments which would affect your rental yields. However these increased mortgage rates may also discourage people from buying residential properties, meaning more people are looking to rent. If your property is empty for any length of time then obviously you are not receiving any income. This is why it is crucial to make sure you buy a property in an in demand area and make sure it is in great condition and attractive to prospective tenants. There are a few things you can do while a property is empty to help save some money such as turning off utilities and asking for a reduction in council tax. It is also a good idea to take advantage of any periods of vacancy and make sure any repairs are taken care of, or decorating that needs updating.
Shop Around For Your Mortgage
Once you’ve found your property you may think all the hard decision are over right? Wrong. You need to secure a mortgage provider and it is well worth shopping around rather than just going to your bank or current mortgage lender. Different providers may have different terms, from deposit required, to interest rates to fees you need to pay. It is best to speak to a qualified financial advisor to help you make the right decision. Only they can look at your situation objectively and discuss all the different options available and how suitable they are for you.
Always Plan Your Exit Strategy
Before you jump in with both feet, it is always important to think about how you’re going to get out again. There could be a number of reasons why you make the decision to sell up, from retirement, freeing up capital to use elsewhere or consolidating your assets if they’re not performing as expected. There are many different options available dependant on your situation, so this is another talk you need to have with your financial advisor. A successful investor knows when it is time to buy and when it is time to sell, so make sure you have plans in place and contingencies in case they’re needed.