The past few years have seen the government cracking down on buy-to-let landlords. Ignited by the ‘housing crisis’, which is seeing first time buyers struggling to get onto the property ladder and a general lack of ‘affordable housing’, buy-to-let properties, or any ‘second homes’ are now subject to an additional 3% Stand Duty Land Tax charge on purchase. In addition, the way income from residential rental is taxed is now much tighter and set to become even more so over the next four years. Added to this, there are regulatory compliance aspects that need to be factored in.
Altogether, residential buy-to-let is nowhere near as appealing as it was. Although having said this, there can still be profits to be made with wise purchases.
So if you still want to be a residential property landlord, what should you look out for?
- The rental market is still strong so is the monthly rental is set appropriately with a good enough yield, you will still be able to make an annual profit through renting out a property.
- Another consideration is choosing a rental property that will increase significantly in value in the long term. Do your research and look at investing in locations where property prices are showing strong and consistent growth. Location, location, location!
- Buying a property that needs improvement work can also still be a viable option. If you’re able to negotiate a good purchase price and spend wisely on renovation, you might be able to maximise your rental yield or potentially sell on the property at a profit.
- The key is selecting the right tenant – targeting areas to attract good, reliable tenants.
What about commercial property?
Just as there is a shortage of residential properties coming to market for let, so too is there a lack of decent commercial property available – particularly in our region. There is, however, still plenty of demand for certain property types. Concurrently, we’re seeing rental levels in the commercial sector being driven upwards.
With the squeeze on residential rentals, investor landlords are becoming more active in the commercial sector – snapping up decent buildings as soon as they come to market.
Also, business owners (Directors) often want to take advantage of the financial breaks offered by owning their own property and paying rent back to themselves through their property.
So what should you consider if you see commercial property as your investment ‘end game’?
- Even though prices are being driven up by investor landlords, if you are a company owner wanting to own your own business premises, the advantage of doing so might be worth the extra investment. You just might need deeper pockets! Don’t forget to factor in the costs of adapting/renovating the property so it is suitable for your business use.
- Although mortgage rates are currently low, interest rates were raised for the first time in seven years in November 2017 and many are predicting further increases over the next 12 – 18 months. When doing your sums, for either a residential or commercial property purchase, you should account for any potential rate rises and work out whether it will still be worth your while.
For further advice on buying a property investment, including building surveys and valuations, please contact us.
