Whether you’re investing for the first time or you’re just looking for your next investment opportunity, it is crucial that you have done your research. This article sets out some tips to ensure that you make the correct decisions on your first (or next) buy-to-let property investment.
Tax Changes
As a property investor in a world of ever-changing tax regulations, it is of the upmost importance that you become tax aware. In recent years, new tax laws have affected the property market and landlords responsibilities.
Tax changes on rental incomes
Unlike in years before where you were able to claim 10% ‘wear and tear’ on furnished properties, new regulations mean that you are only able to claim for genuine damage or repair. Tax changes on rental properties now declare that landlords are only able to claim 20% mortgage relief compared to 45% in previous years.
Stamp duty
Property investors are now required to pay an extra 3% stamp duty tax for properties that are not their primary residence.
Capital Gains Tax
When selling a property, you must pay either 18% or 28% tax of any profit you make on the capital value of the property. However, the first £11,100 of profit is free from capital gains tax. As of 2019, Capital Gains Tax will have to be paid within a month of the property’s sale.
Understanding the market
Decide whether you want your buy-to-let investment to produce rental returns or capital growth, establishing this will determine the type of property you invest in and the tenants you aim to attract.
Rental returns
If you’re hoping to make profit from rental returns, it is paramount that you focus your decisions around this. For example, some areas produce higher, more lucrative rental yields – research shows Manchester has the highest net rental yield at 6.73%, compared to the lowest net rental yield of 4.65% in Stockport. Deciding where you will invest in property will have an undeniable impact on your success.
Those looking for rental return profit should focus their property search on undervalued or low-priced properties in order to produce higher yields as opposed to capital growth. Student buy-to-let properties are a great example of what is potentially on offer, for those seeking rental returns. Purpose build student accommodation is not only becoming more popular, but is usually very cheap to buy, making it a great opportunity for investors in the buy-to-let market.
Investing in an area with a large student population but undersupplied housing is sure to generate a substantial amount of interest and therefore, profit. Those who may not want to invest in student accommodation are still able to opt for residential buy-to-let properties. With more households now choosing to rent rather than buy, the market lends itself perfectly for those looking for high rental yields.
Capital growth
If you prefer to make a profit through the capital growth of a property or portfolio, choosing a location to invest in that has higher property prices is more likely to generate long term interest. If you’re looking to profit from capital growth, your ideal tenant is someone who plans to live in a property for a longer period of time opposed to students who come-and-go.
Other things to remember
Whether you chose a property that produces rental returns or capital growth, investing in areas with good commuting links and contemporary or future developments will help attract a larger amount of potential tenants.
Your responsibilities
As a property investor and landlord, you have a range of legal responsibilities to ensure that your property is safe to live in. You must assure that the rights to live in your property are protected by an Assured Shorthold Tenancy that discloses things such how much the rent will cost and when it is to be paid, who is responsible for repairs on the property and how long the tenancy lasts.
Your responsibilities also include choosing a deposit protection scheme. You can either keep the deposit for the property, paying interest to an insurer – this is the Insurance Deposit Protection Scheme. Alternatively, you can pay the deposit into a scheme of your choice and earn interest – this is known as the Custodial Deposit Protection Scheme.
When renting out your property furnished, it’s also important to work with an inventory service to help keep track of everything in your property. This involves checking the property before the tenant arrives and comparing it with the state of your property after they leave. Should there be any missing items, broken furniture or damage to the property, you may be able to make a claim through the courts. However, the best way to avoid this is to have regular inspections to check on the status of your property. If the tenant has caused damage, then you’re within your right to evict them if they have hidden it from you.
Other responsibilities include:
- Interior and exterior repairs of the property
- Safety checks for gas and electric must be undertaken
- Furniture in the property must meet fire safety regulations
- Checking that the heating and water facilities work properly
Property investment comes with both financial and legal commitments that make it a risky, yet highly rewarding business opportunity. To ensure that your role as an investor and landlord is as straightforward as possible, you must research into different types of properties, locations and tenants. To avoid disappointment and financial distress, it is important that you have an exit strategy in place in order to maximise and maintain your profits from both single investments and property portfolios.
For more information on buy-to-let property investments or to browse a wide range of investment opportunities, please contact Hopwood House.
