AD | Have you ever thought about investing in property with a buy-to-let to generate a higher return on your savings? True, a raft of Government tax reforms means purchasing a buy-to-let can be less profitable than before, but the UK has a growing population and there just aren’t enough houses in many areas. Something that isn’t likely to change any time soon. So, if you can invest in a property and rent it out, you’re likely to generate more interest than leaving your money mouldering in a savings account. If that sounds good, here are some simple tips to help you ensure your buy-to-let will be a good investment.
Buy-to-let: what to be aware of before you start
Boring but important, the Government taxes you need to know about include a 3% stamp duty surcharge on new purchases if you already own a residential property, and the phasing out of higher rate tax relief on mortgage interest payments, ending from April 2020. Investors used to be able offset their mortgage interest payments against their rental income, but not any more.
Another tax to remember is Capital Gains Tax as buy-to-let properties aren’t exempt from CGT. So, if you make a profit when you come to sell, you’ll could be taxed on it at either 18% or 28%, or even both (!) depending on your income tax bracket. (The taxable gain is effectively added on top of your taxable income. Where it falls within any remaining Basic Rate band it’s taxed at 18%. Above that it’s taxed at 28%. So, some people are taxed at both 18% AND 28%).
It’s also well worth looking at the Government’s How to let Guide to help you to understand what responsibilities you have as a landlord. For example, you’ll be responsible for gas and fire safety, getting your correct Energy Performance Certification (EPC), charging a fair rent, rent increases, tenant deposits, repairs and maintenance, taxes, and giving your tenant(s) a copy of the Government’s How to rent Guide.
Identify your ideal tenant
Spending time on identifying your ideal tenant(s) before you invest in bricks and mortar is never time wasted. For example, young professionals tend to favour light, airy and modern spaces, whereas students (and their parents!) will just want cheap, cheerful and good value. A family will most probably need plenty of space and to be near good schools.
And if you’re considering buying a holiday let, do your research first and see what the demand is like in your chosen area. Staycations are proving increasingly popular, and the UK also attracts a growing number of overseas visitors. Although consider too that, out of season, your property may remain empty for long periods, giving you no return on your investment during that time.
Choose the right property in the right area
University towns, for example, will always have lots of students every year who are looking for accommodation. Similarly, consider buying a house near a hospital – doctors, nurses and support staff need accommodation too. And remember to buy with your head, not your heart. It’s not you who’ll be living there, and you want to make a return on your investment, don’t you?
A quick calculation to work out what your rental income could be is a worthwhile exercise. And it should go without saying, but always make sure your mortgage lender knows you’re planning to rent the property, not live in it yourself.
Find the right agent
Being a good landlord entails a lot of work. If you’d rather not be the first point of contact for your tenant(s) then you’ll need to employ an agent. Here’s where word of mouth and recommendations come in handy. If you don’t know a fellow landlord, try looking for recommendations on Facebook, for example.
And work out what you’re happy to deal with and what you’d prefer to delegate to your agent. Discuss with them what you’re happy for the tenant(s) to do in your property and what you’re not (eg, no pets). The cheapest fees and percentages don’t always mean the best agent, so do ask what they can offer, and if their services come with any add-ons or extras.
Protect your buy-to-let investment
Insurance isn’t the most exciting of subjects but when you’re investing in a buy-to-let then you absolutely must get a landlord’s policy or dwelling policy to protect your property. Your insurance needs to provide cover for loss or damage caused by standard and industry-specific perils. And make sure you get the right policy for your property and how you intend to let it.
Holiday let insurance is very different to general run of the mill insurance, for example. And speaking from personal experience, some insurance companies charge a higher premium, or even refuse cover completely, if some or all of the apartments in a building are let to students. It’s well worth taking the time to research and compare landlord insurance* options to get the right one for you.
Still keen on purchasing a buy-to-let?
Purchasing a buy-to-let property as an investment is not something to go into lightly. But despite all the regulations and taxes, it’s still one of the best ways to get a good return on your money. True, there are other options such as crowdfunding, peer-to-peer lending, and investing in funds for a stake in the property market. But while these do come without the hassle of buying, running, and selling a property, you’re not in overall control and you don’t get to keep all the income.
Stocks and shares or savings rates can (and usually do) go down, but bricks and mortar will always be a tangible asset. Whatever your savings goals, you can borrow against that asset and it should continue to give you an ongoing income for as long as you need it to. And that’s an investment worth some serious consideration, don’t you think?
Have you ever considered purchasing a buy-to-let? Are you already a landlord? What tips would you give to someone thinking about buying an investment property for the first time?
* This is a sponsored post.
My boyfriend thought about doing a buy to let, so this is so helpful! I went to look at some houses with him, and I struggled with the head over heart aspect, as I found it hard at first to remember that we weren’t looking for somewhere for us xx
Hannah | luxuryblush
Oh good, I’m so glad! And yes, it’s really hard to remember that it’s not you that you’re buying for, the temptation is so strong when you see something you’d love to live in too xx
This is such an interesting post! I really wish I was in the position to be able to buy to let. This is an excellent guide to highlight some of the considerations into buying a to let property. Thank you for sharing xxx
Thank you so much – I wish I was in a position to invest in a buy-to-let again right now too but I’m keeping my fingers crossed we can soon – need to start saving up for our daughter’s college fees, haha! xx
Unfortunately I rent my house and can only dream of buying a house one day, let alone buying to rent.
Thank you for reading anyway 🙂
This is such an interesting post, if I could afford it I’d love to buy to let as it would be such a great financial thing. These are really good points to consider, thankyou for sharing x
Thank you so much, I’m glad it was helpful/useful x
Really informative post – I always thought if I racked up enough savings perhaps investing in property and letting it out. I feel like I’ve definitely learnt a few things that I will need to consider.
Thank you! Yes, it’s quite an outlay isn’t it, but I think the returns make it more worthwhile, I’m glad it was helpful 🙂
I am in no position to do this anytime soon – however, it has always been an option! Would love to make streams of income through property!
Really informative post that makes it all easy to understand!
Hayley || hayleyxmartin
Oh I’d love to be a property magnate, but I think that’s a pipe dream, haha. Still, it’s been very useful to research what’s involved – and thank you 🙂
Not something I can do yet but it’s interesting advice, especially tailoring the property choice to your ideal tenant/s
It’s akin to business, you have to identify your ideal client and market to them appropriately, and it’s the same for a property investment business too!
While I’m not in the position to do any of this at the moment, it’s definitely something I’d consider doing in the future as it’s such a great source of income and a totally worthwhile investment, my family currently have a property so I’m privy to some of the behind the scenes elements of the business but it’s always useful to learn some more details! Thanks for sharing such useful tips and advice on how to go about doing this x
Oh that’s interesting – how helpful to have a birds eye view of what’s really involved in property investment! Thank you so much, that’s very kind of you to say so, I’m glad it was useful x
Great advice Lisa. I think putting money in to property is probably the best way of securing it.
We have a rental property that will support us during retirement.
I think we should be teaching children about money in school, real money and real ways to save and invest.
Thank you, Claire, I think so too, although I’m aware not everyone is in a position to do so. That’s great that you’ve got something for the long term and yes, I absolutely agree with you about schools and the curriculum, I don’t know why more isn’t done at that state.
It’d be amazing to buy a house for this purpose. I’ve heard of a couple of YouTuber’s doing this (although they can obviously afford to do it!) and it seems like a great investment. Really informative post xxx
Yes, it would, it’s a long-term goal of ours because of the solidity of the investment and how much you get back. Thank you, Jenny, I’m glad it was helpful xxx
These tips are absolutely amazing! Thank you for the tips!
Love, Amie ❤
The Curvaceous Vegan
You’re very welcome 🙂
You’ve brought up some great points here. I’m nowhere near in the position to be able to do this for myself but both of my parents have buy to lets and my dad really struggles with the whole not becoming too emotionally invested in it because it’s not really your house side of things. He has a mini meltdown whenever the tiniest thing happens (even usual signs of a home being lived in, not necessarily damage). I don’t think he’s the best person for this kind of thing 😂 x
That’s interesting – I think it’s a very common theme that you end up becoming too emotionally invested (no pun intended!) in something that’s supposed to make you money. It’s hard to draw the line between protecting your investment and learning to be more business-like, isn’t it 🙂 x
This is a great post. I’m sitting in the realtor business, and we have a lot of places go for this exact purpose. It’s a good way to make a profit if your get the groundwork done correctly and keep to the rules (and learn to spot a bad renter).
Thanks for sharing 🙂
Love, Tea
https://teaspangsberg.com
Oh, that’s really good to hear, particularly from the expert’s POV, thank you. And yes, good tip about bad renters! x
I’ve often pondering doing this – you’ve given me some things to think about. Thank you!
You’re very welcome – happy pondering 🙂
These are great tips Lisa! I am saving for my mortgage but if I ever wanted to do something like this, this is helpful! Thank you for sharing Lisa xxx
You’re welcome, I’m glad it’s been useful! xxx
Such great tips! I really want to do a buy to let within the next five years, it must be so reassuring to know you have that income each month xo
Makeup Muddle
Oh that’s great to hear, I hope this has been useful – and good luck with your buy-to-let! x
This sounds like good advice although I’m not sure how much of it applies here in Australia, haven’t heard of buy to let before!
Hope that you are having a lovely weekend 🙂
Ah, well, perhaps the point about buying your head and not your heart if you want to turn a profit when you sell might be helpful? 🙂
It is interesting to see how buying property works in the UK. There are lots of things for consideration, especially when you want to make money and still be in compliance. I like that you talked about buying with your head, not your heart. In business, you have to do that. Thanks for sharing all of these details!
Nancy ♥
Thank you very much – head over heart is one of the hardest things to do, I think, because we tend to react emotionally rather than logically. Especially when a large sum of money is involved, haha! x
Ooo thanks so much for sharing this Lisa! it’s been super helpful for us! We have been considering all options and buy to let was one of them! It’s nice to see it in such detail 🙂
Ashleigh
Oh yay, I’m so pleased it’s been useful! Good luck if you do go down the buy-to-let route, I think it can be very rewarding if you get everything right 🙂