You could secure a 'very high payout' with buy-to-let property, but is it still worth the gamble? Expert analysis
An expert discusses buy-to-let properties
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This fall in BTL purchases has partly been driven by the sharp rise in interest rates on BTL mortgages, but also by a series of measures introduced over the last few years that have made BTL property less attractive from a tax point of view.
Those changes include preventing landlords from deducting mortgage interest costs from their income, which has, in turn, increased their tax bills.
Another is the reduction in the expenses landlords can claim against tax bills for ‘wear and tear’ on their properties.
So, is paying cash for a buy-to-let still worth the gamble? Naturally, people want a yes/no answer, so I’ll provide one: Yes, and no.
Buy-to-let property purchases have decreased
GETTYLet's deal with the ‘no’ answer first. Although rents are high at present, the best yield rent versus what you have paid is likely to be about five per cent.
If it’s more than that you should worry; there may be something wrong with the information you’ve been given.
Out of this modest return, you must find maintenance, agent fees, repairs, insurance and, from time to time, the allowance for tenants not paying or an empty property between lets when the bills continue, and the income will be zero.
In other words, you have very little income to gain, less than you’d get in a bank and all of the risk of the wrong property or tenant pushing you into negative financial territory.
What little income you may make will be added to any other earnings and taxed. Buying a rental property for its income is, in fact, pointless.
So what about the ‘yes’? Very few people have bought an investment property in the last decade and regretted it, perhaps with the exception of those affected by the cladding scandal.
The reason for this isn’t income; it is capital growth. Prices have doubled in the last 10 years and because the amount we pay for a property is substantial compared to, say, how much we’d risk in stocks and shares, that gain is likely to be in the hundreds of thousands.
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Jonathan Rolande shared his analysisJONATHAN ROLANDEWill prices do the same again? Nobody truly knows but it certainly isn’t impossible.
Most investments are a gamble and property is no different. The odds of buying a property and pocketing a good income are low.
The chances of capital prices rising in the coming years are much better. Take a long-term view and the payout could be very high indeed. Of course, nothing is guaranteed and Britons should carefully consider all options and seek advice before making a purchase.
Property expert Jonathan Rolande is the founder of House Buy Fast and lead spokesman for the National Association of Property Buyers. For more information visit www.jonathanrolande.co.uk.