Buy-to-let was widely seen as a great and relatively easy way to make money while providing a much-needed roof over tenants’ heads. But many changes to policies have put a question mark over this type of investment.
Due to changes in tax laws, the profits made by landlords have taken a serious hit. Since 2016, the government has clamped down on the buy-to-let market by reducing mortgage interest relief and surcharges in stamp dutyA tax paid by the buyer when purchasing a property.. This has caused increases in tax bills and concerns as landlords are no longer eligible to receive the full 40% tax relief.
If you’re thinking of choosing buy-to-let, here are some aspects to consider and how to prepare for becoming a landlord:
Is buy-to-let a worthwhile investment?
Buy-to-let properties offer landlords a regular source of steady income, as well as a potential long-term yield from increases in property value. When properly maintained and cared for, profit can easily replace employment income which gives owners more flexibility and freedom with their time.
On the other hand, this type of property is a high-maintenance investment that can be a risk. If you’re unable to find tenants, you risk having to make mortgage payments out of your own pocket. You’re also responsible for the state of the property and managing tenant problems which can be time-consuming.
You’ll also need to factor in costs of stamp duty, insurance, and wear and tear which can eat into your profits.
How can you get started:
Whether you’re wanting to rent one property or many, there are several things to consider before becoming a landlord. Rental properties are in high demand, but they can be a lot of work, so you need to be prepared for a lot of planning.
- Sort finances – First things first, you need to make sure your financial situation is watertight and buying property is realistic. Be sure to inform any mortgage lenders if necessary and keep a detailed log of your financial records.
- Find property – When looking for a property to purchase, you should take factors like potential for house price growth and tenant demand into consideration. The top investor hotspots for help-to-buy properties include Sunderland, Burnley, East Ayrshire, and Middlesborough.
- Insurance – Once you’ve acquired a property, you should get landlord insurance to protect yourself, your property, and those living there. Ideally , this would have been purchased before tenants move in and offer different levels of cover, including property owners’ liability and content insurance.
- Finding tenants – Finding the right people to live in your property can be tricky as you don’t want to end up with anti-social tenants that damage your property or refuse to pay rent. You could consider going through an agency to help attract quality tenants or do thorough background checks if you want to do it yourself.
- Be prepared for landlord responsibilities – This includes repairs, maintenance, EPCs, health and safety, and more. Failing to meet your landlord’s responsibilities could result in tenants bringing legal action against you.