Due to a raft of legislation in the last few years, not forgetting some adverse tax changes for landlords, you might be wondering if property is a good investment in the UK in 2020. Due to Covid-19 and the massive government debt, commercial and residential landlords can expect further taxes for the property investment sector. Although there are a host of organisations to help tenants, the only free association for landlords in the UK is the British Landlords Association.
One positive thing about being a landlord is that it could be better than having your savings in the bank earning nominal amounts as these are times of negative interest rates, meaning it can actually cost to keep money in a bank account at the moment.
Becoming a landlord is not a way to get rich quickly
Investing in commercial or residential property for letting purposes is not a route to get rich quickly. While investing in Buy to Let could be a better investment option than leaving money in your bank account or other investment options, it is not a get rich quick scheme.
So is property a good investment in the UK in 2020? With rental income coupled with potential property value appreciation, it could be an attractive option if you are considering the Buy to Let market.
It is vital to buy a property at a good price and since the Buy to Let property is not for your personal use, you should have a broader area to source a property below market value. Ideally, you want to buy near where you live, so it is easy to manage.
Some investors are attracted to high yield properties in areas in the Northeast and Northwest like Liverpool, Grimsby etc.
Although the yields look good on paper, in practice some of these areas tend to leave some landlords with frequent vacant periods, so there is a lack of interest in these areas for the Buy to Let investors for good reason.
Becoming a landlord does not provide a passive income
Generally, some people think being a landlord is an easy job, just buy a property and sit back and relax. For residential property, this is not true but for commercial landlords, it does seem to be that much easier, especially if the property is in a prime location.
Being a landlord does require effort, and it does at times lead to stress due to issues like rent arrears, damage to property, or the process of eviction. Your investment at some stage will require repairs, refurbishment, and you will have to manage the tenancy too. The work needed in managing your properties will be ongoing and is time-consuming, it will not provide you with a passive income.
Time is money for a landlord
Whether you are a landlord with one property or a hundred, you will have to invest time in managing your investment. It is time-efficient if your properties are close to where you live.
You need to consider if you have the time to deal with all aspects of the letting market before you think of becoming a landlord. Using a letting agent will reduce the time required in managing the properties. However, ultimately the major letting decisions rest with you and simply having a letting agent on board does not mean you will be free from all of the associated letting responsibilities.
Do your research before you become a landlord
It would help if you did your research on the tax implications, and how they may affect you. It might be a better option to consider using a limited company as an investment vehicle, but you should seek professional advice from an accountant on this subject.
The government has recently introduced tax changes for landlords and a raft of recent other new legislation that affects landlords directly. You should consider them all before you go into the Buy to Let market. Some of these changes are driving landlords away from the residential letting sector, they feel it’s no longer worth being a landlord.
Can you charge enough rent to break even?
You have a few factors to consider to make sure all the figures stack up to your financial advantage. If you are taking out a mortgage, you will need to take into consideration void periods, rent arrears, and tax liability. It is not worth considering becoming a landlord unless you receive at least 30% after your operating expenses.
You will need to put aside money for repairs and refurbishment. Occasionally, the need for refurbishment may be due to the destruction of your property by the tenant and in some cases, the insurer may not pay out, and you will have to pay the bill.
Landlord responsibility to know the law
Landlords must know their legal responsibilities.
Some of the main thing’s landlords need to be aware of include:
– A smoke alarm must be installed on each floor of the property.
– Carbon monoxide detectors must be placed in rooms with a coal fire or wood-burning stove.
– A valid current EPC must be provided for the property.
– A gas safety certificate for each gas appliance must be available inside the property.
– If you took a deposit, you must comply with the deposit legislation.
– To reduce the risk of fire, all furniture must meet safety standards and display the appropriate labels.
– Any electrical devices must be safe for use, and an Installation Survey or Portable Appliance Testing (PAT) could be considered so that you can be sure you are compliant.
– You must check that tenants have a right to rent.
– The water supply must be working correctly.
You must allow costing for repairs and refurbishment
Some landlords fail to factor in potential finances required for repairs, decoration, refurbishment, and legal fees.
Let residential properties frequently need repairs, replacement, decoration, and at some stage refurbishment. Most tenants will not look after the property as you do your own home, for let properties general wear and tear may be more frequent. For HMO, the wear and tear are even more frequent.
Landlords should seek to reduce voids, to do so, try to keep the rent at a reasonable level, and consider taking tenants who are likely to be long-term tenants.
An empty property is likely to mean that you are responsible for the council tax on the property for the period it is vacant.
Each time a tenant leaves, the property is likely to need some work even if it is general cleaning, etc, and that means losing money and time.
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There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.
Please remember that investments of any type may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.