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Investing in buy to let property is best with a good adviser

Originally written by Stephanie Spicer on What Investment

It’s understandably tempting to seek a life-raft when financial waters are choppy, with further storms on the horizon. So, it’s little wonder property appears a safe haven right now.

Rightmove reports asking prices rising 5.5% a year1, with demand at a six-year high. Buy-to-let looks healthy, with frustrated young purchasers unable to afford a deposit on their own home. And the English Housing Survey shows a fifth of households now in the private rental sector2 – a proportion that’s growing fast.

But first impressions can be misleading – or, at least, show only one side of the story.

For example, how wise would investing in bricks and mortar seem in a year’s time when the stamp duty holiday ends – meaning buyers have to pay tax again on lower-cost homes? What if demand subsequently falls back, along with prices? Will buy-to-let still be attractive when tax relief measures on mortgage interest and capital gains are cut?

You get the point: property, like any investment, can be complex and it’s worth considering other opportunities to hedge your bets and safeguard your future.

The case for diversity, flexibility and advice

For an investment portfolio to be successful it needs to be diverse. If you’re too narrowly focused and choose a single investment option – no matter how appealing it is in the short term – it could create problems down the line.

Investment also needs flexibility – for example, who at the start of 2020 anticipated the financial impact of the covid-19 pandemic? If retirement is looming and you have only one investment option right now, and that hasn’t fared well in the past year, you’re in difficulty.

Planning and tax considerations are long-term considerations for investment success, and it’s absolutely not too early for people in their 30s and 40s to get on board.

Taking advantage of expertise to optimise property investments

There’s still plenty to play for with property. The best buy-to-let investments can still produce annual yields of 5%, says estate agency Savills3. When it comes to investing, you need a plan and there are plenty of questions to answer:

Is it better to manage a property yourself or use an agent? Do you purchase one type of buy-to-let, or a range? Should you choose variety of locations, with different types of tenant to hedge your bets and protect against losses? Should you buy in an individual’s name or through a company? What sort of mortgage is required?

Part of addressing these questions is to be clear on what your goals are in the long-term; whether you are seeking continuous income in the form of rent, or long-term gain through capital appreciation.

Here are some key considerations:

Location of your rental property is key

Consider local demographic. For example, does the area that you’re interested in have a dense student or young professional population? City centres and satellite locations continue to offer the highest rental yields; with the North West significantly higher.

Hands-on activity

Are you prepared for all of the time that managing a buy to let property portfolio demands? Managing your portfolio yourself won’t eat into so much of your profits, but do you have the time for this? With the rise in remote working, the demand for better rental accommodation has increased which can add to the strain for landlords.

Structure the purchase in the most tax-efficient way

Many landlords are choosing to invest through a limited company, but do you know what corporation tax is due? And how do you demonstrate that your purchases are of benefit to your company?

Financing the property purchase may bring complexities

Many buy-to-let lenders have recently increased their loan-to-value mortgage products which is a positive step, but what are the challenges for self-employed investors right now? It’s important you find the right lender if you’re going down this route.

Have you considered the holiday let market?

As well as taking advantage of the current demand for ‘staycation’, holiday lets have some tax advantages not available to buy-to-let investors. Owners can claim all ongoing costs, including cleaning, agency fees and mortgage interest against their profit, reducing any income tax they have to pay. Holiday lets and short-term rentals also offer more flexibility when it comes to tenants, which can make it a more profitable option.

Remember the golden rule: a diverse range of investments is vital

And with an expert who’s up to date on regulation and legislation. Spread your investment portfolio out over a range of properties so that if one is struggling, the others can provide damage limitation. But having a diverse range of investments extends beyond just property; balance these assets with other forms of investments such as pensions, ISA’s, stocks, shares, collectibles and bonds. There is so much choice when it comes to investment, but a balanced approach is needed now more than ever.

The role of an adviser is invaluable. They will not only know the differences between investment options, but also have deep knowledge of the sectors ­– for example, the recent and future tax and regulation changes reducing the profitability of buy-to-let.

There’s great value in a long-term relationship with an adviser – someone who’s an expert in your corner, up to date with new opportunities and in tune with your goals.