What is Buy-to-Let?
The term Buy to let, also commonly referred to as B2L, can be defined as a type of property investment that allows you to own the property with the intentions of leasing it out, without the intention of residency. Although Buy to let properties are usually leased on the basis of long-term residency, the term also includes other property investments such as student rooms or hotel room investments. A Buy to let mortgage is a loan that can be taken out by those specifically designed for those looking for this type of investment property.
Buy to let investment properties are usually managed by third-party organisations who charge the landlord a monthly fee to ensure a hands-off, fully-managed investment opportunity. However, some landlords may even choose to manage the B2L property themselves, although this is fairly uncommon as buy to let property management can pose quite a tedious task.
These properties boast high rental yields in comparison to other investment opportunities, which is the main reason as to why people choose to invest in them. According to Totally Money (2020), the median rental value for B2L properties in Liverpool totalled to £750 per month, cultivating to a high investment yield of 10%.
Buy to let properties come with a plethora of advantageous and disadvantages for the landlord looking to invest in such a lucrative opportunity. The following below will encompass the pros and cons of such an investment:
Capital Gain and Growth – One key benefit of investing in a buy to let property, like any other property investment is the prospects of capital gain. Regardless of the fact that properties’ market values can fluctuate, buy to let properties serve well to investors in the long term with increased value and marketing gains.
High Rental Yields – The main factor which influences peoples’ decisions towards investing in B2L properties is the opportunity to gain high rental yields. Buy to let properties offer some of the most promising rental yield rates in comparison to other investment opportunities. For example, in Liverpool – One of the most upcoming and emerging UK hotspot locations, investors can benefit from an average rental yield of 8.67%.
Strong Levels Of Demand – Due to the lack of affordable housing and stricter mortgage criteria which prevents more people from securing a mortgage towards their own house, people are looking for alternatives such as renting. This in turn has allowed the rental market to boom and offers strong demand rates at an all-time high.
Offset Costs Against Tax – A key advantage of these B2L properties is the ability to write off a few associated costs against tax. A few of the things you could write off include:
- Letting agents fees and payments
- Advertisement costs associated with your rental property
- Repairs and some maintenance fees
- Council tax and bills (If they’re paid for by the landlord and not the tenants)
- Certain renovations and furnishings (Excluding home improvements, such as extensions)
Passive Income Source – With the purchase of an investment opportunity such as a buy to let, you can generate a regular stream of passive income which will help create financial stability and freedom in the long run.
Tenants Will Pay Off Your Mortgage – Due to renting out your property, it allows tenants to pay off your mortgage repayments and provide some extra income, which makes this a viable investment opportunity. With the addition of utilising low buy to let mortgage rates, this could further increase your overall profits as your monthly mortgage repayments will be lower, allowing your profit margins to increase.
Uncertain Void Periods – Unfortunately, like any other leased property there is always the risk of facing void periods, both offering uncertain levels of short and long term vacancies. This in turn means the landlord will have to pay for the direct mortgage repayments and bills associated with the property out of pocket.
Tenancy Issues – Another issue associated with renting out any property is the issue of dealing with problematic tenants. This may include:
- Tenants who refuse to pay, pay late or partially pay
- Tenants who damage the property
- Tenants who break the law and sublet part or all of the property without your permission
- Tenants who constantly complain and make unreasonable requests
- Tenants who allow their pets to damage the property
- Tenants who break the law
- Tenants who refuse to leave the property
Legislation – “Landlords have a legal duty and legislation can be a mine field to many being difficult to stay on top of. Ignorance however, is no excuse and hefty fines can be imposed if you do not fulfil your legal responsibilities.” (Shave, 2019)
Increased Stamp Duty Land Tax (SDLT) – An issue many face is additional stamp duty fees when you purchase a buy to let property. From April 1st 2016 you will be required to pay 3% more towards stamp duty.
Management Of Maintaining The Property – With all types of properties, it’s the landlords job to make sure everything is in order within the property. That includes making sure plumbing, electricity, gas, heating, water pipes and applicants are all in working order and are regularly checked.
Sourcing For Reliable Tenants and Managing The Property – A key thing investors need to be aware of is the fact that they need to source appropriate tenants for the property which are reliable and trustworthy. In addition to this they will need to manage the property and the tenants, making sure to find new tenants to fill in the vacancy once a prior tenant moves out, in order to limit the length of void periods within the property. Both tasks can be tedious and time-consuming, but fortunately, real estate organisations can charge a small fee for the daily and monthly managements of these properties.
As you can see, buy to lets are one of the most lucrative property investments which Is evident based on their popularity within Big Roar. As an investor, it is key to weigh them both equally before coming to a decision. It’s imperative to calculate the risks associated in particular with buy to lets so you can plan in advance. An example would be making sure you have a safety fund to cover all of the expenses’ of the property for ‘x’ amount of months in case of void periods. If you need help doing so, our trust team of property sales consults will be on hand to provide support.
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Big Roar is a boutique Property Investment company with a wealth of experience that offers high quality in demand investment opportunities in the UK and worldwide. The aim is to deliver unique property developments either through developer led investment or providing pre-launch or off-market access.
2021 has seen a period of great transformation and growth which has enabled our company to grow and diversify from the traditional property investment model allowing us to launch our Sub-Agent product – allowing individuals and companies to utilise our skills and experience to on sell our wide and diverse portfolio to their own networks and wider audiences.
Our focus is you. Each investment we launch is rigorously assessed by our in-house team of analysts’, and our Portfolio Management team monitor the progress of each project, updating both investors and the developers providing you with a truly hands-off investment experience.
Whether your requirements of new property or off-plan developments for resale of buy-to-let, or high yielding rental properties that will serve well in either the serviced accommodation, short-term or long-term let market, we have complete confidence and proven results to ensure you receive exceptional return on investment.