Recently, Buy to Let has become a much more expensive and risky investment, but there are ways to make it work — you just need to do your research
In order to understand whether a Buy to Let (BTL) is the right option for you, you need to get a grip on where the market stands today. Let’s explore the recent changes in BTL and assess how good an investment it really is in today’s climate.
One of the aspects that has really changed BTL is stamp duty. Landlords are now required to pay an additional 3% stamp duty compared to that which is taken from homeowners. What’s more, if a landlord bought a main residence for £100,000 then they would pay no stamp duty (as this is below the £125,000 limit), but as a second home they would pay £3,000.
What’s more, landlords may have to make changes to the property as a result of legal and survey fees. They may need to upgrade health and safety measures such as boilers if the property doesn’t meet today’s gas safety standards. These upgrades can cost thousands or even tens of thousands, particularly if you let rooms and need a house in multiple occupation (HMO) licence.
If you’re buying a property with cash, a property and your rent will need to grow each year by around 3% to keep up with inflation and retain value. This value then needs to increase even further to cover the cost of selling when it comes to it, as there are legal and agent fees to consider, as well as capital gains tax (CGT) incurred on any growth in capital value.
For financial investment, CGT is charged 10% for lower rate taxpayers and 18% for higher rate payers.
Reading these figures, there’s no denying the fact that BTL has become a more complex investment opportunity than in previous years. Other investments can cost very little to invest in and can even attract additional tax relief. However, this isn’t to say that BTL cannot work for landlords. In fact, for some it may still be the best option.
A rise in prices can lead to profits in the long term. Unlike stocks and shares property can be bought with a deposit. A cash investment of £100,000 can be much more lucrative than the same amount being simply invested. You can benefit from a growth in assets worth £300,000. This means even just a 10% price rise can deliver an exceptional return.
You can also take opportunities to buy properties at a true discount by purchasing from sellers who need a quick turnaround and are therefore willing to sell for potentially tens of thousands of pounds less. This is becoming more common as more and more landlords try to exit BTL by selling up quickly.
Similarly, if a property cannot be bought through a generic mortgage scheme but is available through cash only, it may be possible to purchase the property discounted, fix any issues, and make an immediate profit.
Because some landlords are leaving the BTL market, there could be a reduction in the number of properties available to rent, which will help keep yields positive, whilst a steady trickle of BTL properties returning to the market could create the opportunity to snag a bargain.
Whether you are considering an investment or are already a landlord, speaking to professionals in the Buy to Let industry can help you understand the ever-changing market more clearly. Visit glenhawk.com to find out more about what we can do for you.