In spite of the doom and gloom headlines and the UK governmental onslaught on the buy-to-let market, there are good reasons to be positive about it. Here are five top tips for today’s generation of property investors.
Do you research thoroughly before you part with your cash
People refer to “the property market” but actually it would be far more accurate to talk about “the property markets”. Leaving aside the differences between investing in commercial property, investing in property development and investing in buy-to-let, there is the simple fact that there are huge differences in property prices and rental yields in different parts of the UK. Because of this, you need to be clear about your budget, goals and investing horizon and then look to see what’s out there to suit them.
Think about setting up a limited company
It’s probably fair to say that these days you should probably only think about entering the buy-to-let area if you’re serious about it and if you accept that the best returns are only going to be available to those who put in some effort to get them. That means that you need to approach your buy-to-let investment in a professional manner and treat it as a business rather than just as a means of earning an income. Setting up a limited company is a cost and it does involve a certain degree of administration, but the reward for this is that you can benefit from more favourable tax treatment and will be outside the scope of the new mortgage guidelines for buy-to-let mortgage set down by the Prudential Regulation Authority.
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Remember to calculate the stamp-duty surcharge correctly
Investment is a numbers game so it’s important to calculate the numbers correctly. For standard stamp duty the first £125K of the purchase price is tax free and then after that stamp duty is applied in bands depending on the price of the property. The stamp-duty surcharge is, by contrast, is applied to the whole purchase price (assuming the property costs more than £40K). So if an investor bought a property costing £125K, they would pay £3.75K tax whereas someone buying a property as a home would pay nothing. For a property costing £150K an investor would wind up paying a total of £5K stamp duty (£500 standard stamp duty on the £25K above the nil-rate band plus £4.5K surcharge on the whole purchase price), whereas an owner occupier would only pay £500.
Choose your agents carefully
These days you may need to look further afield than you’d ideally like to secure the best investment returns. For example, if you’re looking at rental yield, right now the north of England and Scotland are the places to be. This may mean that, realistically, you’ll need to use agents to manage your property for you. Poor agents will gobble up your money and offer little in return, but the right ones can be invaluable to you.
Be honest with your insurers
If you try the old trick of buying residential insurance, the best you can hope for is that any claim you make is declined. You could be charged with fraud. Proper landlord’s insurance will give you the cover you need and be within the law.