The factors which affect buy-to-let investment profits
Buy-to-let investment may be a strategy you are considering to increase the return on your savings. Heaven knows the interest on cash won’t make you wealthy. It won’t even keep up with inflation. You’ve thought about investing in shares, but the risk of a stock market crash scares you to death.
So, to property. UK property values have doubled every eight to ten years. Rental prices keep pace with inflation. And you get to take advantage of the benefits of leveraging in buy-to-let investment: making money on other people’s money could produce spectacular real yield on your money. It could be that the real yield on your investment capital could be as high as 10% or more!
Before you rush to take advantage of buy-to-let investment, here are seven considerations you need to make:
1. What is your financial objective?
Property investors profit from buy-to-let investment in two ways: capital growth and rental income. Property values in the UK have averaged a growth rate of more than 8% per year for decades. With the population still growing, it’s estimated that even the government’s target of 200,000 new homes every year will not be enough to satisfy the demand for homes. It should fuel further capital growth and rental price growth for years to come.
2. Where to invest, and what property to buy
Should you invest locally, or look further afield? Investing locally, you could miss out on the best property investment opportunities. Looking further afield, you could benefit from buying in the best places to invest in property UK – where all the property fundamentals line up. The up-and-coming property hotspots.
Having found the location, you then need to decide which type of buy-to-let property you should buy. Which will be most in demand? A family home? A new, modern apartment near public transport hubs? Buying the best type of property in the best location should ensure you maximise rental income and capital growth.
3. Your legal responsibilities
As a landlord, you’ll have a lot of legal responsibilities. If you don’t comply with the law, you could face hefty fines. You must ensure your property is fit for tenants to live in, and keep on top of maintenance and repairs. Also, you must:
- Ensure that all gas appliances and installations have been certified as safe under the Gas Safety (Installation and Use) Regulations 1998.
- Make certain that all electrical equipment is safe – and ensure that operating instructions are supplied, and any safety notices required are prominent.
- License your property as an HMO if needed (or face a fine of up to £20,000).
4. Finding and vetting tenants
You might be tempted to find a tenant without using a letting agent or investment property manager. You’ll need to advertise and market your property, and vet your tenants. You’ll have to run background checks, and contact employers and previous landlords. You’ll need to interview prospective tenants, too. It’s a time-consuming and expensive job, and if you don’t do it right, you could find that a tenant from hell has found you.
5. Conducting viewings and negotiating rent
Prospective tenants will want to view your buy-to-let before making an offer. When they do make an offer, you may need to negotiate on rental price and terms. Conducting viewings and negotiating are both skills which become easier after several years’ experience. First-timers make plenty of mistakes. Bad viewings could put off great tenants. Poor negotiating skills could cost you income.
6. Property management
If you want to be a full-time landlord, that’s great! You might enjoy dealing with ad-hoc enquiries from tenants, arranging maintenance, chasing rent payments, and carrying out regular property and inventory checks. If you have a good property solicitor on hand, this will help to make sure all the legal stuff is dealt with effectively.
If you need to end a tenancy, you’ll need to make sure you do so within the legal framework provided by UK property law) including two months’ notice in writing).
Most professional investors, short on time but long on cash, take advantage of investment property management services. A company like Ezytrac Property Group will take care of all your day-to-day property management responsibilities. They will find and vet tenants, advise on rental prices, conduct maintenance through a network of experienced tradespeople, and liaise with tenants. They’ll chase rent payments, and check your property regularly for loss or damage to the inventory. With this type of property management, your returns really are passively made.
7. UK property taxes
You must declare your rental income and costs. Keep all your receipts, invoices, documentation and other records.
You will need to declare to HMRC by self-assessment, and calculate the amount of tax relief you can claim on your buy-to-let mortgage interest payments. You can offset losses in one year against future profits, but you cannot offset against other income.
If you are a foreign investor, use our one-stop property tax guide for overseas investors to keep on top of your property tax obligations.
Profit from hassle-free investment
Are you fed up with your cash not working for you and losing value every day it sits in the bank?
Would you like to profit from using other people’s money to invest in a real asset with a proven track record?
Contact one of our team today on +44 (0)207 923 6100, and we will help you define your objectives. Together we’ll explore whether buy-to-let investment could be your key to creating the lifestyle you want, without the hassle of becoming a full-time landlord.
Live with passion