If you happen to be a buy to let landlord, this year has seen little good news emerge from the Chancellor’s little red briefcase. Between the reduction of mortgage interest tax relief announced in summer, and the new 3 percentage point surcharge on buy-to-let stamp duty which appeared in the Autumn Statement, the margins are thinning.
Though the mortgage interest tax changes will be gradually phased in between now and 2020, the stamp duty increase will have near immediate effect, entering play on the 1st April 2016 (and no, unfortunately it isn’t an April Fools’ joke).
Whether or not this will help or hinder the economy as a whole, the facts are clear. Buy to let landlords will end up with less cash in their pockets soon. So is it still a worthwhile investment or should you sell buy to let property?
To assess this, it’s always a good idea to take a logical approach and weigh the pros and cons when compared to more traditional investments. With that in mind, we’ve laid out some of the main considerations below.
Management Costs
Managing one or several properties often has costs attached, whether in your own time or through employing others to deal with issues in your stead. Calculate these costs, and add them your cons column so you can calculate the real yield.
Inability to Spread Risk
Unlike shares or other traditional investments, property is an expensive investment to make initially. A more traditional investment portfolio can be spread among various sources to minimise risk. If a few fail to perform, the overall totals don’t suffer too greatly.
Property lacks this defence mechanism, as even the smallest properties cost vast amounts of money, and therefore cannot be easily split.
What’s more, if all your savings are invested in property, you are at far more risk of changes to the property market than those who choose to split their investments between property and other, more traditional options.
Not Easily Liquidated
Property is very much a long term investment. Not only are there costs attached to the purchase and sale, but the procedure of doing so is long and drawn out, taking weeks, if not months.
On the other hand, investments in shares can simply be sold immediately, and the potential loss of selling at an inopportune moment is minimised by the aforementioned spreading of assets.
Additional Costs
On top of management costs, there are also other additional costs to consider. Solicitors are needed for purchase and sale. Building surveyors are a wise investment to ensure what you are buying isn’t damaged in some way. The list goes on. Make sure you calculate these costs, and add them to your management costs, in order to see your true margins.
No Tenant? No Income.
This point is simple enough. With no tenant, you will receive no rent, and therefore no income. This point is especially important to those with mortgages on their properties, as you may not have a tenant, but the lender will still expect to be paid.
Fluctuating Property Value
Just bear in mind that rental income isn’t the only way your investment will grow, as the price of the property is often the true investment. Be sure to include it in your calculations when comparing profits to costs. Although your property has the opportunity to grow in value, equally it has the potential to fall in value. This should be taken in to consideration alongside your other pros and cons when considering which type of investment is most suitable for you.
Repairs and Maintenance
Finally, it’s important to remember that property is not indestructible, and will not it fix itself. You will need to regularly hire tradesmen to ensure each property is kept up to standard in order to not only appease your tenants, but also maintain the value of the property.
Building defects may not be obvious to a tenant, but when you bought the house you most likely hired a surveyor. Many buyers will do the same, and not repairing the property before a defect gets out of hand can cost you more when it comes time to sell.
Compare Pros to Cons, Profits to Costs
If all these cons weigh too heavily on your mind (or your wallet), then more traditional investments may be advisable.
Whatever you decide, if you need to move your existing investments around, or simply want a more in depth conversation about your own specific arrangements, don’t hesitate to call or email. We always aim to get you the best return for your investments, but your peace of mind is important too.