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Buy To Let’s Not Dead

Posted on 28 January, 2018

“Adaptive leaders find opportunity in uncertainty.”

Welcome to 2018.

A new year often means new investment goals. Whether those goals involve buying a home to live in or to rent out, newbie and seasoned investors alike will most likely be asking themselves; “would buying an investment property still be a profitable venture this year?”

Regardless of the initial shock that changes to stamp duty and tax relief caused, the UK property market has fought to remain resilient and still proves to be one of the strongest and most promising property markets in the world. Long term growth is still being predicted in ‘areas to watch’ around the UK, and with new advances in transport connections and regeneration projects underway, previous no-go areas are getting the much needed facelifts they’ve longed for. Therefore, with a little adaptation and research, a new buy to let property could still be a smart investment move. And here’s how:

1. Incorporation

With the mortgage interest tax relief changes being slowly introduced in stages until full implementation in 2021, a growing group of private landlords may soon begin to experience changes in rental profits if their properties have a high loan to value ratio, or if their income falls within a higher tax bracket. But by purchasing in or transferring properties to a limited company, landlords can avoid what would soon become a 20% tax levy on all rental income under the new regulation by paying only 20% incorporation tax solely on the profit earned as a limited company.

Although it is a trickier and can be an expensive process to transfer already privately-owned properties to a limited company, those would-be investors who are yet to start out may want to investigate incorporation and the effects it will have on their profits as an individual before buying an investment property in the UK. For instance, lower rate taxpayers are less likely to be affected by the change if their incomes do not pass the higher tax threshold. But it is always advisable to consult with your tax accountant to discuss which option would be best for you.

2. Investing in outer London cities

The average house price in London has jumped by 518% in the last 20 years making it an understandably unattainable investment area for many. But with many areas outside of the capital proving to be hotspots for rising rental income yields and long-term capital growth, starting costs of investing could be much lower.

Using the example of the Northern Powerhouse, it has continually proved to be a popular choice for investor appetite. According to Hometrack statistics, the average house in Liverpool can be bought for as much as £118,000 with predicted rental yields of up to 8%; some of the highest in the UK. Doing research on different areas is imperative beforehand to get an idea of what the varying expenditure and returns could be. But there will always be a patch out there to suit any investor’s budget.

3. Housing crisis

Unfortunately, not everyone can or will buy a property in their lifetimes. This could be down to not being able to afford a home, needing to constantly move for work/study or not wanting to have to deal with the stresses of homeownership. The rental market continues to command a strong share of living arrangements in the UK with predictions indicating this could grow a further 4% in the next 3 years.

Paired with the current “Housing crisis” and the slow rate at which new properties are being built each year to service the current demand, a growing population of people needing places to live will ensure that this way of life is not about to go away anytime soon.

4. Adapting your rental model

To optimise profit margins, many landlords and investors are beginning to jump ship to adopt more creative (but also more time consuming) models of renting out their property. The most common being HMOs (House of Multiple Occupation) where the property is rented out on a room by room basis to individual tenants. Using this model, the landlord can charge a higher price per room in comparison to the market price of the whole property.

The short-term lets (also considered as serviced accommodation) model most commonly found on sites such as Airbnb and is the most hands on approach, but can be the most profitable method if executed correctly. Landlords can charge prices by the night comparable to hotel prices, which could end up more than tripling rental income in comparison to standard rents. This method works best in metropolitan cities with very good transport links, attractions and amenities to minimise the possibility of long void periods. But with both short term lets and HMO models, the landlord must bear in mind that the turnover rate is much higher and can have a direct impact on income if there is not a constant demand.

5. BTL mortgages for first time buyers

Yes, it is possible to get onto the property ladder by buying an investment property as a first-time buyer. Understandably, this group of buyers are perceived as riskier options for BTL by mortgage providers, so as a result there are much less providers to choose from. However, higher deposits or a high income can demonstrate to lenders that a potential buyer can be a suitable candidate. Just ensure that you consult an experienced mortgage broker beforehand to find out whether you are in a good position to get onto the property ladder as a landlord.

In the course of deciding whether Buy to Let is right for you, these are just a few points to consider before taking those big steps. Factors such as affordability, profitability and commitment make all of the difference too and of course, a buy to let property may not be suitable for everyone’s situation. But if planned out strategically, buy to let can still be a profitable venture even in this current market.

Written by Emma Oruwariye-Briggs, follow or contact me on Twitter @emmaorub

*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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