Can’t afford your own home? The pros and cons of buy-to-rent investment

Think you can’t get on the property ladder? Time to rethink your strategy

Buy-to-rent investment is an option that could get you on the property ladder faster. It’s an investment strategy that is growing in popularity. With an average of more than £32,000 needed for a deposit for that first home, a lot of would-be first-time buyers are priced out of the market. They simply can’t afford to own and live in their ideal home.

Buy-to-rent is very much like buy-to-let investment, except most buy-to-let investors own their home. They use the equity accrued in it to kick-start their life as a property investor.

As a buy-to-rent investor, you rent your home in the area where you want to live but can’t afford to buy, and buy a property in a more affordable area. You then rent out the property you own. This way, you take the first step on the property ownership ladder.

Is buy-to-rent investment the best strategy to get you on the property ladder? Here we discuss the pros and cons of buy-to-rent, from lifestyle to financial.

The advantages of buy-to-rent

As we’ve discussed above, the main benefit for most is taking that first step on the property ladder. But we’ve also helped ex-pats who want to invest in the UK and use the rental income to augment their income. They rent their home abroad. Why would they do this? Because they want the flexibility to live where they want, return to the UK if they want, and benefit from the better property fundamentals in the UK. Buying to rent gives them access to some of the best property investment opportunities in the world while living the lifestyle they want abroad.

The main advantages when you buy to rent include:

You get to live where you want

You want a city lifestyle, but can’t afford to buy in your favourite location? Perhaps you could, if you were prepared to give up the short journey time to work, the café culture on your doorstep, and the amazing nightlife living. You can rent in your dream location, while a property investment further out helps to build your wealth. You’ll benefit from the rippling-out effect of property prices, too.

The wealth your property investment is creating could help towards the purchase price of the home of your dreams. Or perhaps creating a stream of passive income you never thought possible.

You could benefit from extra income

When you first invest, it’s likely to be that your cash flow is marginally negative or positive. But as time passes and you increase the rent you charge, you should benefit from increasingly positive cash flow. Not only will the tenant pay your mortgage, but you’ll get the cream on top.

What could you do with a little extra income? Save for a holiday? Pay your monthly bills? Reduce your student debt? Extra income releases you from the drudgery and pressure of everyday life.

To make your property investment income as hassle free as possible, you should consider the benefits of using an investment property management company. They’ll do all the hard work for you, find the best tenants, and chase the rent. You get on with your life and benefit from rental income on top of your salary.

Perfect for today’s flexible workforce

Increasingly, people want a more flexible life. They want to be able to move easily. Sometimes, your employer could be the one who instigates this.

Renting allows you to live where you want, when you want and without being tied down by a property. I have friends who surf the globe. Three months here, three months there. Their work is Internet-based, and they love travelling, meeting new people, and experiencing different cultures. They own property in the UK, have it managed for them, and receive a monthly income from the rent they charge. The buy-to-rent investment could be the perfect lifestyle option for you if you have that travel bug, or have a job that requires you to relocate often.

The disadvantages of buy-to-rent investment

As a renter yourself, you will be subject to the temporary nature of renting. You can never be certain that your landlord won’t want to sell, or increase the rental price by an absurd amount. Because your home doesn’t belong to you, there is always a degree of uncertainty. Moving can be a hassle, and when you’re on a yearly lease, you should be prepared to move every 12 months (though this is rarely the case). Also you:

  • Could miss out on a first-time buyer grant, which won’t be available for investment property.
  • May have to pay capital gains tax, which is charged on properties that aren’t your main residence when you sell.
  • Can’t customise your home – you wouldn’t want your tenants to make changes to your investment property, and your landlord will expect you to treat your rented home with the same respect.

Should you buy-to-rent?

If you can’t afford to buy where you want to live, a buy-to-rent investment could make sense. You get the lifestyle you desire, while your property investment starts to pay dividends. As an investment strategy, buy-to-rent is a growing sector of the market and one in which more people are considering for all the right reasons. To explore your options, contact one of the Gladfish team today on +44 (0)207 923 6100. You could be closer than you think to that first rung of the property ladder.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
June 20, 2017

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