Buy-to-Let investments are a very common form of investing, and one that is very popular here in the UK. A buy-to-let investment consists of purchasing the property, and rather than living in it yourself, it is rented out to tenants.
However, although this has been a very popular form of investing over the years, changes to the way that it works and the introduction of various regulations has cast a level of uncertainty over the investment type. With this in mind, it is essential that you consider and understand everything within a buy-to-let investment, and so we have created a list of our top tips to help you on your investment journey.
Research all aspects of your Investment
Arguably the most important point to remember, research is a big part of any buy-to-let property investment opportunity. Firstly, you need to research into all financial aspects of the investment, considering whether you are able to afford the investment, how much you may be able to make in regards to returns and also how likely you are to be able to attract tenants. Without researching into the financials of an investment, you will be unsure of how successful your investment is likely to be, as well as how much it may cost initially.
Another important aspect to consider is who your tenants will be, and how they may tie into the type of investment you are looking to invest in. By considering your tenants first, you will be able to search for potential investments that are likely to return you the most amount of money. If you are aiming to attract students then you must look for suitable properties in ideal locations, whereas if you are looking for long-term and stable tenants then you may wish to invest in a care home investment. Different tenants will be looking for different things in a property, and so it is important that you consider what different types of tenants will be looking for. Not only will this help you to find the best properties for a specific tenant type, it will also mean that you can understand which route you would like to take for your investment.
As well as this, you should research into different exit strategies that may work best for different property investment types. By considering exit strategies at this stage, you will be able to make informed decisions about your investment, as well as understanding how you want to operate as an investor.
Consider different Locations for your Investment
If you choose to invest in a certain investment type, like a commercial property, care home or student property investment, the location will be very important in attracting tenants. The best way to choose a location would be to firstly consider which investment type you are looking to invest in, and then considering what potential tenants may want from your property. For example, students will be looking to be close to their university, transport links and other amenities, whilst young families will want to be close to their child’s school and the local shops.
Although finding the right location is important for tenants, it is also important for how much money you will be able to make from your investment. Different locations will have different initial costs for the property, as well as being able to achieve different yields. With this in mind, you should aim for a balance between financial benefits and the ability to attract tenants, as the two do very much go hand in hand.
Be aware of the different Tax Charges
A big part of property investing is tax. Although that is a very unfortunate and not so welcomed fact, it is something that does play a very big part. There are a range of different taxes that you need to be aware of, however two of the main ones are Stamp Duty and Capital Gains Tax.
Stamp Duty – As of April 2016, landlords are now ordered to pay an additional 3% stamp duty tax on properties that aren’t their main residence, applying to the whole property price for any properties costing over £40,000, except from some purpose-built student developments.
Capital Gains Tax – When looking to sell your property, you will also be charged with a capital gains tax. Depending on your tax bracket, profit that you make from the sale of your property will be charged at either 18% or 28%, although the first £11,100 of profit is free from the tax charge. Sellers currently have 18 months to pay their capital gains tax, although this is due to change in 2019 where sellers will only have a month to pay.
Understand your Responsibilities as a Landlord
As a buy-to-let investor and a landlord, you have a range of responsibilities that you need to ensure that you fulfil. As a landlord, you need to ensure that the tenant’s deposit is safe and secure by making use of a relevant Government-backed deposit scheme, of which are in place to protect the deposit and to resolve any issues that arise regarding the deposit.
You also need to ensure that an Assured Shorthold Tenancy (AST) is in place, something that gives tenants the legal right to live within your property for an agreed amount of time. The AST will highlight all aspects of paying rent, responsibility for maintenance and repairs, details of eviction notices and also the length of the tenancy.
For more information on investing in buy-to-let property, please contact Hopwood House.