Is buy to let still a worthwhile investment?

In recent years landlord profits have taken a hit due to changes in tax laws. You may ask the question ‘Is buy to let still a worthwhile investment?’  We look at the pros and cons.

If you are interested in investing but prefer the idea of putting your money into bricks and mortar rather than stocks and shares, a buy-to-let property might be one option worth considering.

To a large extent evaluating whether it is worth it or not depends on the type of investment you are looking for, and your ultimate investment goal.

Let’s look at the pros and cons:-

Advantages of buy-to-let

  • You will earn rental income (though possibly less than in previous years). In some areas of the UK, such as Liverpool, Glasgow and Leicester, rental yield is as high as 8%, while other areas are around the 3% mark. In the North West, it is 5%.
  • It is a tangible asset. Rather than buying interest in stocks and shares and hoping they perform well, you have an active role to play in every part of the letting process.
  • You can obtain a buy-to-let mortgage.  Click for mortgage advice from Redrose
  • At the same time, you could generate capital growth as your money grows as your property value increases.
  • You can take out insurance to cover against loss of rental income, damage and legal costs.
  • The fall in the supply of rental properties, coupled with rapidly rising house prices putting house ownership out of reach for many, means the competition for good quality rental housing is high. This could potentially increase the rental prices and allay fears of having an empty rental on your hands.

Disadvantages of buy-to-let

  • Your tax bill will be higher than it once was, eating into your profits.
  • If you do not have the right insurance in place, you might not generate an income if the property is unoccupied.
  • If property prices fall, your capital will reduce. And if you have an interest-only mortgage, you will need to make up for any shortfall if the property sells for less than you bought it for.
  • You will need to factor in the costs of stamp duty, insurance and wear & tear.

Is buy to let still a worthwhile investment – Yes

No investment is without risk but if you take a long-term view of it, buy-to-let can work for you. It’s not a get-rich-quick scheme but there is a good income to be made if you go in with your eyes open. Although some of the recent changes make buy-to-let less attractive to some investors, if done right, it remains profitable. Whilst rental yields have declined, it is essential to remember that although rental income is important, capital growth is also a factor that makes investing in property very lucrative.

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