Changing regulation, particularly around taxation, means that those who are interested in the property industry need to stay up-to-date with the ever-changing buy-to-let landscape. Residential property remains a popular investment choice and the rental market continue to grow, so new investors are still coming into the market, despite the ongoing changed to the sector.
Together, of togethermoney.com have put together (no pun intended!) some handy and useful tips that we would like to share with our current, and potential investors.
DO YOUR HOMEWORK
Buy-to-let investors now face an extra 3% stamp duty on additional properties (ie any property bought in addition to their own home) under new measures introducted last April. The Government is also pressing ahead with its crackdown on the tax relief claimed on maintenance. Currently, landlords are able to claim the top rate tax relief on residential buy-to-let properties but this will soon be reduced.
The change will affect higher rate taxpayers who could see their profits drop significantly. New investors need to ensure they understand what lies ahead so they can plan accordingly. In some cases, investors are turning more to semi-commerical and commercial property as an alternative to residential, which is the target of the changes.
WORK OUT YOUR RENTAL YIELD
Rental yield is the annual rental income as a percentage of the property value, so landlords will need to work this out accuratley in order to estimate the profitability of the property. The Prudential Regulation Authority (PRA), part of the Bank of England, has set out new guidelines on interest coverage ratios (ICRs) that investors need to take into account in their calculations. The aim of the new rules is to ensure buy-to-let investors could cope with a rise in interest rates and that tennants are protected.
LOCATION, LOCATION, LOCATION
There are various ways to second guess up and coming areas, so do your research! Major infrastructure projects, such as HS2, can greatly affect the money landlords make on their investment. It has been said, that recent research suggests that areas with faster broadband speeds can add some value, compared to underserved areas, whilst towns with growing universities or similar institutions can flourish. Landlords managing their own properties will need to live nearby to deal with maintenance problems, or pay a letting agent (like ourselves who offer different levels of services!) a management fee to field calls from tenants. Investors will also have to carefully choose an area popular with renters to ensure the property doesn't stand empty.
CHOOSE THE RIGHT PROPERTY
Investors will need to research the local market and get to know which areas are popular with families or students, for instance. In town centres it may be easier to rent out a one bedroom flat, whereas a three bedroom terrace is likely to work better in a family neighbourhood. For both location and the property, transport links, schools and leisure facilities are all key factors. Investors looking at an area they're not familiar with should speak to locals and use sites like Rightmove to get some background information and sense of market rents.
We, here at Hawkins are also happy to discuss all up and coming rental areas, fees and figures with you so please don't hesitate to contact us anytime on 02476 374949 for Nuneaton, 02476 312379 for Bedworth and 02476 257281 for Coventry.
GET YOUR FINANCES IN PLACE
Other than those looking at cash purchases, buyers will need a buy-to-let mortgage. Mainstream banks will typically look at how much rent the property will bring in, as well as age, property type, income and credit history and may have strict lending criteria. However, there are alternatives to the high street - We here at Hawkins have a completley Independant Financial Advisor who will be happy to assist with your buy-to-let needs so please contact us today to discuss further!
Source: Togethermoney.com (The Negotiator)