Investing in a buy to let property can be a profitable way to use your money, but there are downsides you might need to consider. Here are some of the pros and cons to buying a property to rent out.
The positives of a Buy to let.
Long term investment and growth. Whilst house prices have fluctuated in recent years, properties still are relatively safe long-term investments. You should take note that prices go up as well as down. Over the long term they normally increase but you need to make sure that you are aware of the downside.
They will generate an income and can meet mortgage re-payments. Renting out your property to tenants means they will pay for your mortgage. They may provide some extra income which will be the key to a successful buy to let. You may be able to take advantage of low buy to let mortgage rates and you could increase your profits further. It does mean that your monthly payments will be lower so your profit margin may be bigger.
You can offset some of the costs against tax.
Each year you will need to fill in a self-assessment tax return for the HMRC. You will then have to pay a tax bill. There are certain things that you can offset against tax including fees from lettings agents, council tax bills, cost of advertising your property, certain repairs and maybe some interest on your mortgage repayments. But this is being reduced. You may get tax relief for renovations to furnishings, carpets, and sofas but not necessarily improvements. You should always take the advice of an accountant.
What are the downsides of investing in a buy-to-let property?
Buy-to-let property can provide a steady income and long-term capital growth, but it also comes with financial responsibilities and risks. Before investing, it is important to understand the potential downsides.
Void Periods
One of the biggest risks is a void period. This is when your property is empty and not generating rental income. During this time, you will still need to cover mortgage payments and other property costs. Make sure you have enough savings or personal income to manage these periods without financial strain.
Higher Stamp Duty Costs
Since 1 April 2016, most buy-to-let purchases have been subject to an additional Stamp Duty Land Tax (SDLT) surcharge. The surcharge starts at 3% and applies if you already own another residential property, including your main home. Before buying, ask your solicitor to confirm exactly how much SDLT you will need to pay.
Ongoing Maintenance
As a landlord, you are responsible for maintaining the property. If something breaks, such as the boiler or washing machine, it is your responsibility to arrange and pay for repairs or replacements. Unexpected maintenance costs can quickly add up.
Finding and Managing Tenants
You will need to find suitable tenants, either yourself or through a letting agent. Managing the process yourself means advertising the property, carrying out referencing, obtaining guarantors where required, protecting the deposit in an approved scheme, and ensuring you comply with current legislation. With frequent changes to rental laws, staying compliant can be challenging.
The Cost of Using a Letting Agent
Many landlords choose to use a letting agent to save time and reduce stress. A good agent can market your property, find and reference tenants, prepare legal paperwork, protect deposits, and deal with day-to-day management and maintenance issues. While this service comes at a cost, many landlords find the expertise and peace of mind well worth the fee.
The property market is currently busy, so what are the top tips for me to be able to buy in this market?
The spring housing market is busier than ever. We understand that some houses are being sold within a week of coming on the market. Whilst a lot of property may be coming on the market the buy and demand is quite high. This is due to the pandemic and the current reduction in stamp duty that is being reduced in June. You may find that people start to put more property on the market over the next few months.
Do you want a quote on your buy to let property/ Got commercial property and would like a quote, how about an office insurance quote? Do not hesitate to contact us on 01273 827090 or enquires@iinsure365.co.uk.
What are the top tips to put you in the front of the queue when you are finding a property?
Search on all the portals. You need to make sure that you search all the portals daily. You will stay on top of what is available in your area. This will allow you also to judge the prices in the area as soon as a new property comes on the market.
Sign up for instant property alerts.
All the major websites have alerts such as Rightmove, Zoopla, Prime Location, Boomin and on the market. You will be able to put your details in, tell them what you are looking to purchase, and they will then match your listing. You will also receive an alert if one of those properties has had a price reduction. Always try and be first in the queue when this happens.
Apply for a mortgage in principle even if you have not found a property yet.
Estate agents are more likely going to take you as serious buyer if you have a mortgage agreed in principle. It shows that you are a willing and able purchaser wanting to make an offer. You may also need to prove that you have current funds for the deposit.
Find yourself a solicitor.
It is so important to find yourself a solicitor from day one. You will then be able to work out what the fees will be. Valuable time can be saved by having a solicitor details ready so when the offer has been accepted it can go through very quickly.
If you have a property to sell instruct an estate agent immediately to sell your property. If you have a property to sell, then go through your local estate agents and decide on which one you want to list your property. You will be in a much stronger position once your property is on the market. People will take you more seriously as you have already agreed a sale of your property. If for instance you put an offer in on a property, but you have not yet sold and somebody else does but they don’t need to sell then they are in a better position and the owner could therefore agree to sell it to them.
Are you looking for a quote for your investment property? Call us on 01273 827090 or enquiries@iinsure365.co.uk.
Why is the property market so busy?
There is growing optimism due to the corona virus vaccine roll out. There are returns of the low deposit mortgages. Stamp duty holiday has been extended. This all motivates people to look for property.
It is very difficult to compare this from a year ago. This is because in effect the property market was effectively suspended. However, it does show that at this moment in time the prices are rising rapidly due to the amount of demand. This cant be sustained over a period and as we have stated previously the market goes up as well down so you should be careful about considering any form of investment. You ay decide to invest in other forms of property such as real estate investments, buy to let investments, property development, building a new home or alternatively invest in property abroad. We would always suggest that you seek independent financial advice so that you are fully aware of what the pitfalls are when even considering this.
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