Despite variables including Brexit, Covid-19 and the Stamp Duty Tax that have been introduced throughout the course of the year, Buy to Let still remains a safe long-term investment. Whether you are investing in a Buy-to-Let property for the first time, or you are experienced in the field and simply want to add to your collection of properties, here are few things to keep in mind.
Buy-to-let is the term given to buying a property, which you are going to rent out, rather than live in yourself. If you’re not buying the property outright with cash, you’ll need a buy-to-let mortgage. These mortgages will usually have higher fees due to the bigger risk for the mortgage provider.
Capital Gains Tax (CGT) – If you sell your buy-to-let property, any profits will be subject to CGT. It’s worth considering this as a cost, which you’ll need to deduct from profits made on your investment.
Providing energy efficient homes – Something you may not have considered is the initial cost of making sure the property you buy meets the Minimum Energy Efficiency Standard (MEES) regulations. The regulations necessitate that rented homes should have a minimum EPC rating of E. Costs to carry out the work are capped at £3,500 per property.
You can earn an income two different ways. One way is through the rent paid by tenants of the property, and the other is through capital growth, depending on where the property is located. In London, regenerative areas are becoming increasingly in demand, which is causing property prices and rental yields to climb.
Selling a Buy-to-Let property is relatively easy and typically, will work in the same way as selling any other property. If you’re selling a Buy-to-Let property empty, you’ll be able to target both landlords and the residential market. As well as widening the pool of prospective buyers, an empty Buy-to-Let property minimises any complications that come with viewings.
Location – Think location, location, location. With property values differing so much and the expected price rises dependent on where you buy, it pays to spend some time researching the best buy-to-let areas.
Your future tenant – Location is extremely important, but it might help to think about who your ideal tenant would be. Are you looking for students, professionals or families, for example? Your tenant choice may have an impact on the location.
Seek the advice of professionals – There are ways to minimise the effects of the regulatory and tax changes for buy-to-let. It’s not a one size fits all approach though and depends on the size of your portfolio, whether you’re married, if you’re a basic or higher rate taxpayer, etc.
Finding the right mortgage: A key decision to discuss with your adviser is whether to choose a repayment or interest-only mortgage. Most buy-to-let mortgages are interest-only, as this means lower monthly repayments and thus higher income. However, if your priority is a long-term investment, a repayment mortgage may be better.
Choosing property: Think about the kind of tenants you want. Do you plan to let to students, young professionals, families, or perhaps people moving house and looking for temporary accommodation? Your choice will determine the kind of property you should buy, and where to search for it.
Selecting a letting agent: They’ll find you tenants, run the necessary credit and legal checks, take care of the maintenance and collect rent on your behalf. A good letting agent should be part of a scheme or association, like the National Approved Lettings Scheme (NALS) or the Association of Residential Letting Agents (ARLA).
Arranging contracts and running checks: All landlords are now legally required to check that their tenants over the age of 18 and have the right to live in the UK. These are called Right to Rent checks. It’s your responsibility to take copies of the original documents (passports etc.) from all tenants over 18. For every tenant you take on, have your solicitor draw up a contract for you both to sign. This kind of contract is also known as a tenancy agreement and should outline both your own rights and those of your tenant(s). When you receive a tenant’s deposit, you must put it in the Deposit Protection Scheme (DPS), unless you’re a live-in landlord.
Being a landlord: There are certain responsibilities that come with being a landlord. On moving day, you’ll have to do an inventory with your tenant to mark down what’s included in the property, and any existing damage to these items. When the tenant moves out, you can check this against the condition they leave it in and decide if you want to deduct any money from the deposit for any additional damage. Also, as a landlord, you must make sure your property is safe to live in. Every year, you need to get a registered Gas Safety engineer to check any gas appliances, including the boiler. Moreover, make sure that any furniture and electrical equipment, like kettles and microwaves, meet safety standards.
Running your buy-to-let business: If you own more than one rental property, it can really help to get an accountant on board to help keep things tax efficient and maintain your cash flow. The money you receive in rent counts as income, so it is exposed to income tax. You can however reduce the amount payable by offsetting profits against your expenses (e.g. maintenance and letting fees) on your self-assessment tax return.
