Purchasing a buy to let property can be an appealing way of investing your money, but there are practical issues that should be considered before going ahead.
Investing In Buy To Let Property
1. Location, Location, Location
It is vital to thoroughly research the area before buying a property. Every area is different and the type of area can have a huge impact on your potential tenants. It is also important to make sure you investigate the property itself in the form of a survey.
2. Purchase Costs
Once you have found a property it is important to calculate the purchase costs – Stamp Duty Land Tax can be significant.
There are also estate agents’ fees to consider, health and safety requirements, tenant leases and tenancy deposit schemes, and licenses if you are renting a home in multiple occupancy. These combined costs can make property a relatively expensive investment.
3. Finding The Right Letting Agent
It is worth researching different letting agents as their services and standards can vary immensely. Ask other landlords, or look out for members of The National Approved Letting Scheme, which can offer peace of mind as agents must meet requirements, such as transparent fees, professional indemnity cover, putting service standards in writing and offering a complaints and dispute resolution services.
4. Dealing With Tenants
Potential landlords need to prepare themselves for both good and bad tenants and the many different issues that can arise. It is vital to have a well prepared tenancy agreement. You should also consider how you would deal with:
- Tenants who damage or fail to maintain your property, and the resulting costs of repairs
- Tenants who default on their rent
- Tenants who refuse to vacate the property
5. Tax Implications
It is worth getting advice on the tax implications of rental income, as this can differ due to whether the property is furnished or not.
Rent profit is subject to tax but not National Insurance Contributions like earned income, and you will be able to deduct costs for items, such as repairs and letting agents’ fees.
It is also worth considering that the property may be subject to Capital Gains Tax if you wish to sell it.
6. Investment Risk
It is worth considering the potential risks of solely investing in property. While ‘bricks and mortar’ can be a solid investment, there are potential pitfalls such as falling house prices or increased interest rates. If you solely invest in property these can have a major impact on your returns.