Buy-to-Lets Can Still be Good Investments
The latest BTL tax change in 2017 is a critical issue because it can affect a private landlord's ability to turn a profit. The recent changes to mortgage interest payments means that landlords can no longer use their rental income to offset their high tax rates, before making their final tax calculation.
The tax "relief" will be completely phased out by 2020.
Aside from the tax issues, private landlords will also have more hoops to jump through:
- Before the property can accept tenants; the landlord must ensure that the property passes the health and safety inspection. These are legal requirements and can incur heavy penalties if the safety standards are not met. If a landlord has more than a few properties, the additional costs can affect profitability. You can learn more about the landlords legal obligations here.
- If a landlord is converting a property to a HMO, additional safety checks need to be done, as well as an intensive evaluation by the council to make sure that tenants rights are being protected. Landlords will also have to apply for a special license to let out a HMO. More information can be found here.
- Tenants have certain rights which can be at a disadvantage to a landlord. Evictions can be difficult, especially if the tenant has occupied the property for a long time, they may be reluctant to leave. Landlord/tenant disputes can end being settled in court, which will have to be paid out of the landlord’s pocket. Learn more about tenants’ rights here.
- In 2015, the government increased the stamp duty for private owners and landlords looking to buy more properties by 3%. The additional tax was created to generate an additional £625 million during 2016/17. This was also created to deter private landlords and to offer more incentive to first time buyers. However due to rising house prices, the government took in close to £2 billion.
Other factors that can affect a landlord’s profitability:
- If being a landlord is not the primary career, a property management company can be hired to help. However, this means that the landlord may have to pay up 25% of earnings to the managers, which can reduce net profits.
- To find tenants, landlords will need to hire an estate agent to help with admiration, background checking tenants, and listing the property. This can incur heavy costs.
- There is the possibility that the tenants do not look after property, which means that landlords will have to pay for any damages. Before a new tenant arrives, the property will have to be cleaned out, ensuring that it meets the health and safety standards again.
- Tenants not paying their rent is an unfortunate problem, but due to certain tenant’s rights, they may be able to stay in the property for a prolonged period of time without paying rent and refusing to leave the premises.
- The worst-case scenario is if the property is vacant. Having an empty property means that landlords are losing money, especially if the property has been purchased using a mortgage. Failure to pay the mortgage may lead to the property being seized.
Buy-to-lets on CrowdLords offers investors the chance to invest in properties without having to do the challenging work themselves.
- CrowdLords provides BTL opportunities in different parts of the UK, giving investors the option to easily diversify their funds to reduce overall risk
- CrowdLords looks out for investors interests by sourcing properties that are below market value. This is to the advantage of the investor, because when the property is sold at the end of the term, the capital gains will be much more substantial.
- Investors can invest from £1,000, making the entry to the property market far more accessible
- CrowdLords BTLs are created to be tax efficient. Using an SPV, the investment would have to pay corporate tax, which is considerably much lower than the income tax many private landlords must pay.
- the investment is managed by us, as an investor, you do not need to take an active role in managing the investment, but still get the same benefits as a private landlord.
Our goal at CrowdLords is to make investment easier and more accesible, and if you're ready to invest, be sure to browse our properties.
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