There are many factors to take into account in deciding if buy-to-let represents a suitable investment for you. Here is a financial appraisal to get you thinking some more.
Factors to consider:
- Your available funds
- Your existing investment exposure to residential property (including your own home)
- The necessity, availability, and attraction of borrowing to fund all or part of the investment
- The 'hassle' of being a landlord - with potential return comes responsibility
- The returns both in the form of rental yield (net of expenses) and realiseable capital growth
- Taxation both on net income and on capital growth
Here is a list of the key expenses a landlord can deduct from their gross income for tax purposes:
- Mortgage arrangement fees
- Mortgage interest
- Letting agent fees
- Advertising for a tenant costs
- Maintenance and repairs
- Wear and tear on furniture
- Ground rent and service costs
- Other direct costs of letting (phone calls, travel between properties)
The main advice is to keep proof of all expenses in case required by HMRC.
With regard to property income it is really important to arrive at the NET income rather than focus on the GROSS income. For example:
Lets take a house in Bristol worth say £500,000 which yields a gross rent of £2,500 per month - £30,000 per annum. A Gross Yield of 6%.
If this was to be funded by an interest only mortgage of £300,000 then the net position could look like this
Rent: £30,000 (ignoring possible unlet periods)
Less Mortgage Interest: £13,500 (@ 4.5% after an initial lower interest period)
Less Additional Costs £4,500 (@ 15% of the rent including insurance, maintenance etc)
Less Agent Costs £3,600 (@ 10% (+VAT) of the rent)
Less Tax £3,360 (@40%)
Net Received: £5,040
Therefore the net yield post tax will have fallen to 1.01%.
In assessing the attractiveness of returns on buy-to-let property, it is also important to consider the possibility of capital appreciation too. However, here the impact of capital gains tax at 28% for higher rate tax payers. Remember with property you cannot simply sell off a bathroom to use your capital gains allowance.
If you are interested in buy-to-let property please get in touch for a full appraisal of the options for you. Contact email@example.com or telephone 0117 966 5699.