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Investing in Property? Read this
Property has always been a good asset class to invest in. Over the long-term it tends to be more profitable than the likes of stocks and shares. As a landlord you’ll receive a monthly income, while your property also gains in capital appreciation. A win-win then.
Having said that, a few changes to landlord tax allowances and stamp duty on second homes has cut into those profits a little. Still, bricks and mortar can still be a lucrative way to invest your cash. And it’s not just you benefitting – keep your home well-maintained and it will be appreciated by your tenants too.
Is It a Good Idea to Invest in Property?
Rental demand far outweighs supply in most cities, especially in the Capital where it’s estimated that 60% of the population will be renting by 2025.
Young professionals in particular move around a lot for employment, meaning they would rather rent than buy. Lending criteria is tough at the moment and it’s difficult for first-time buyers to save enough for a deposit. As a result, renting has become the norm for many twenty and thirtysomethings, we’ve found here at Property Loop.
Do You Pay Stamp Duty on a Buy to Let?
New rules by the government means buy-to-lets incur additional stamp duty. This works out at 3%, as well as the normal Stamp Duty rate. At the moment there is a Stamp Duty holiday, but it is due to end on March 31, 2021.
Do You Need a Bigger Deposit for a Buy to Let Mortgage?
Expect to pay a higher deposit for a buy-to-let deposit (between 20% and 40% but usually 25%). You’ll also pay a slightly higher rate of interest than for a residential mortgage.
Most buy-to-let mortgages are interest-only. That means you’ll pay back the interest rather than the amount borrowed. It means you’ll have more short-term income and can use the appreciation you’ve accrued over the years to pay it off at the end. It’s worth chatting it over with a financial advisor.
What’s the Best Location?
You might want to choose a buy-to-let close to where you live so you can keep an eye on it. You’re also likely to know the streets round about and which ones are best to live on (so more attractive for tenants).
At Property Loop we regularly check rental yields in different areas and find out if there is any regeneration occurring in more run-down areas. That way your investment property is bound to go up in value. A good yield is anything from 5% upwards.
Managing Your Property
Will you be a hand-on landlord (ie manage the property yourself?). Or, will you use a letting agent. If you do go down the latter route it will cost you 10% to 15% of your rental income since they will manage the property too. You’ll pay less for an online letting agent, but you’ll expected to show round the prospective tenants yourself.
You also have responsibilities as a landlord. You’re letting out a home for people to live in, after all. Some of your main rental priorities are to:
- Check a renter’s Right to Rent
- Make sure the property has at least an (E) EPC reading
- Get a gas safety certificate
- Place the tenants’ deposit in a government-accredited scheme
- Sign an AST (rental contract) agreement with the renter
- Give at least 24-hours’ notice before entering the rental property
- Pay for wear and tear and broke appliances
- Supply smoke detectors and carbon monoxide alarms
- Carry out a legionnaire’s disease test
- Get a licence for an HMO if that’s your property plan
Pay Tax on Your Rental
You’ll pay tax on your rental income (not just rental profit) if this, combined with a salary, is more than £12,500 (the current personal allowance). You can claim back some expenses, such as letting agency fees and replacement furniture etc.
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