There had been concerns that increased stamp duty and cuts to mortgage tax relief on buy-to-let properties would have deterred investors. However, for many in the UK, the idea of investing in bricks and mortar still appeals, while others feel they can add value to existing properties. Some investors are taking steps to weather the changes, including switching to short-term holiday lets or commercial property, or putting their residential portfolios into limited companies.
Specialist lender, Together, share their top tips to help those considering investing in a property portfolio or existing landlords who are looking to make the most of their investments, navigate this ever-changing landscape.
Do your homework
With the Government’s plans for the buy-to-let sector, doing your homework is critical. Mortgage interest tax relief is currently being withdrawn in stages, to be replaced by a 20 per cent tax credit. Also, landlords have had to pay an extra 3 per cent stamp duty on property purchases. You need to be able to adapt to the changes and to ensure you’re getting financial advice on your own tax position and the impact the changes will have, so you should monitor industry news to keep up with new developments or hot topics to ensure you have all the latest updates.
Work out rental yields
The rental yield is the annual rental income as a percentage of the property value. Therefore, understanding the potential profitability will help you identify the types of properties and locations that will best suit your budget. Before you start looking for new properties, sit down with a pen and paper and think about your budget and the rent you are likely to get. Also, don’t forget factors such as maintenance costs.
Location is key
Major infrastructure projects, as well as local developments, can greatly affect the money landlords can make on their investment. The current desirable areas for renters are usually well-known, but an up-and-coming area could be a great opportunity, so you might want do a bit of background research. Think about whether a town is in a commuter belt, or is near well-regarded schools or good hospitals.
As a landlord, you will need to live nearby to deal with maintenance problems, or pay a letting agent a management fee to field calls from tenants. You will also have to carefully choose an area popular with renters to ensure the property doesn’t stand empty.
Choose the right property
You will need to research the local market and get to know which areas are popular for different types of renters, such as families or students. For example, in town centres it may be easier to rent out a one-bedroom flat, whereas a three-bedroom terrace is likely to work better in a family neighbourhood. Also, think about the tenants you are looking to target. If they are professionals, for example, they may be looking for a modern, stylish home, while families might want a bit more space.
Securing finance
Unless you are a cash buyer, you will need a buy-to-let mortgage. There are a number of specialist lenders, like Together, that will consider buy-to-let mortgages on properties such as those in need of renovation, that the mainstream banks may not. We will also deal with a broader range of applications; from those with complex income streams and retired people, to those with a less-than-perfect credit rating, to give just a few examples.
