Investment Properties
Buying a property which you can rent out could provide you with a regular income and in the long term has the potential for capital growth.
Many people have invested in buy to let properties as their pension where the monthly rental income supplements their pension or the property can be sold to provide a lump sum.
However buying a property to let is not a get rich quick scheme. You cannot guarantee that the property will be rented 100% of the time or that it will increase in value.
Remember if you need the capital which you invested in your buy to let property it may take time to sell the property, so never invest capital in property which you may need at short notice.
What type of property should I choose as a buy to let?
When buying a property to let you should not choose a property just because it appeals to you as you are not going to live in the property. You must put aside your personal tastes and choose a property on a commercial basis. It is a good idea to check out local letting agents and ask advice on what type of property is most in demand and easy to let.
Choose a property in a location where demand for rental property is high and choose a property type which would appeal to the majority of tenants. For example a three bedroom property would attract a larger number of potential tenants than a one bedroom property.
You have to decide if you will let the property furnished or unfurnished but remember tenants may not take the same care of your furniture and fittings as you would yourself.
Most tenants will expect the property to be carpeted or have polished wooden floors or tiles and have a cooker. Fitted wardrobes are also an advantage in a rental property.
You can choose to include such items as fridge, freezer, washing machine and a dishwasher but remember these items will have to be checked for electrical safety and will be your responsibility to repair if they breakdown.
Research the area thoroughly as prospective tenants will require good transport links and/or car parking on site and local amenities such as shops and leisure facilities.
Any property which is let has to have an energy efficiency survey, a gas safety certificate and an electrical safety certificate.
Buy to Let mortgages
Most mortgage lenders now ask for a 25% deposit and will only lend up to 75% of the value of the property. Loans can be on a repayment or interest only basis, but the lender will need to know how you will repay an interest only loan at the end of the agreed mortgage term. This may be from the sale of the property.
A lender will value the property and determine the amount of rent which they believe the property is worth. They may also stipulate who you are allowed to accept as a tenant with many lenders excluding DSS tenants and only permitting rental to one family and not multiple unrelated tenants. They will also expect the property to be let on a six monthly Assured Shorthold Tenancy. They will not normally lend on properties which are divided into bedsits or have more than one kitchen.
Using a letting agent or managing the property yourself
Decide if you would like to manage the rental of your property yourself or if you would prefer a letting agent to manage the property for you. Letting agents fees vary and include items such as checking the credit history of a potential tenant and getting references from their employers and previous landlords and advertising your property. An agent also ensures that the rent is paid on time and should check the property regularly to ensure that the tenants are taking care of the property. They are also the first contact for any emergencies such as water leaks or equipment breakdowns and most agents will arrange for repairs and refurbishment when necessary.
Will I have to pay tax on the rental income?
Income from rental property is subject to income tax but the interest you pay on your buy to let mortgage is eligible for tax relief as are a variety of expenses such as any agents fees.
The amount of tax you will have to pay will be based on your net income after deduction of any allowable expenses such as:
Interest payments on your buy to let mortgage (this does not include the capital repayment)
Mortgage arrangement costs
Letting agents fees
Building and contents insurance
Maintenance costs (such as painting and decorating and repairs)
The cost of the gas and electricity safety certificates
Accountants fees
Cleaning between lets
Ground rent
Council tax (during any periods when the property is not let you will be responsible for paying the council tax)
What happens when I sell the property?
When you sell a rental property you will have to pay capital gains tax on the difference between the buying and selling prices, less allowances and tax relief's. Capital gains tax applies on selling any property which is not your primary residence. The rate you will have to pay depends on your income and personal circumstances.
Each person is allowed to make a certain amount of capital gains each year before tax. If a property is owned by more than one person the amount of capital gains tax exemption is allowed for each person. For example if a property is owned by a husband and wife then there would be two times the annual exemption available.
If you would like to discuss your specific property requirement with us please contact us to arrange an appointment.
Your home may be repossessed if you do not keep up repayments on your mortgage.
For mortgages we are normally paid by commission. We charge a £99 non refundable fee at application. Other charges may apply in certain circumstances - ask for details.
David S Lowe Financial Management is authorised and regulated by the Financial Conduct Authority and is entered on the FCA register (www.fca.org.uk/register/) under reference 458258.
The FCA do not regulate some forms of Mortgages.
For advice on any of the above, Contact Us now.
