UK landlords have long invested in property to produce a decent rental (investment) yield. But what is investing in property, and what are the benefits? This guide explains everything you need to know about buy-to-let.
What Is Buy-to-Let?
It is the practice of purchasing a property to let it out. Traditionally and especially in less known areas, it has been a relatively popular way to invest and produce a yield as a result of reasonable house prices.
What Is a Buy-to-Let Landlord?
A buy-to-let landlord is a person who purchases property to let it out to others. This can be an individual or a company (limited company). Doing this can be for several reasons, including:
- gaining profit from rents
- potential capital appreciation
- generating an income from their capital
What Are the Benefits?
This provides an additional source of income to diversify your savings go further and allows people to invest their money into an alternative asset that aims to mitigate the effects of inflation.
However, there are advantages and disadvantages to be aware of. These are:
Advantages
- Diversification
- Low transaction costs
- Some tax advantages
- Potentially Scalable
Disadvantages
- Potentially difficult to obtain finance
- Risk of capital depreciation (Loss)
- Tax rules subject to change. (Do note that certain tax advantages have diminished in recent years)
- Risk of tenant default
- Risk of rental void during periods where there are no tenants.
- Need to find and manage tenants
- Difficulty in finding suitable properties
Should You Buy-to-Let as a Landlord?
If you decide to invest in property as a rental, you must first consider whether you would prefer to manage your property yourself or use a letting agent. However, if you decide to invest in property, you will be in a good position to benefit from any economic upswing.
With buy-to-let, you can keep the property for as long as you like and take advantage of any potential capital growth.
How Can You Become a Buy-to-Let Landlord?
There are a few main ways you can become a buy-to-let landlord. These include:
- Become a buy-to-let investor
- Become a buy-to-let landlord through an investment company
- Invest with a limited company
Becoming a Buy-to-Let Landlord
Before becoming a buy-to-let landlord, you will need to have a certain amount of capital, to begin with. Lenders will tend to ask for higher deposits with BTL mortgages and will look at stress testing the potential income from the property.
You will need to be prepared to take on a lot of the work involved in being a landlord. This includes finding and managing tenants, as well as collecting the rents. You will also need to complete annual tax returns. Therefore you need to be clear on your objectives with the property.
Conclusion
Becoming a buy-to-let landlord should be approached as a business proposition. You should only be seeking to buy a property as an investment strategy. Doing so could potentially increase the property’s value in the future. However, you must view this as a long-term investment, as it could take years before the property can be sold for the capital gain you seek. Do remember though that there is no guarantee property prices will continue to rise at the rates we have seen in current years.
We would recommend that you seek tax advice from a qualified tax adviser before making the final decision in respect of becoming a landlord.
This article is for information only and should not be seen as advice or a recommendation to act. As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.
A Move Brokers are qualified professional advisers who can help you with your specific mortgage or protection insurance needs. We work closely with regional estate agents in Chester, Wales, Wirral, Liverpool and surrounding areas and actively analyse the marketplace to provide you with the best service. If you want to invest in buy-to-let, we can get you in touch with one of our buy-to-let advisors. Book a free consultation to explore your options and make an informed decision.