Buy-to-let investments are an excellent way for overseas investors to generate passive income in the U.K. property market and build long-term wealth, but it’s important to understand the essentials of it before diving into the business. With this guide from Value Invest we’ll provide you with a solid foundation to start your buy-to-let property journey.
Buy-to-let is a type of property investment strategy where you purchase an investment property to rent it out to a tenant. Buy to let properties are popular as they offer investors two streams of income.
Firstly, there’s the rental income, a regular source of earnings as you let the property to tenants.
Secondly, there is the capital appreciation of the property value over time, which could significantly increase the return on investment when the property is eventually sold.
Some investors do this with one property to earn extra income whilst maintaining a full-time job as their main income source and others become full-time landlords by owning multiple BTL properties.
As in any investment, there are a number of challenging factors to be aware of in the BTL market, such as:
The returns on your buy-to-let investments are called rental yield and depend on several factors (e.g. type of property, location, market conditions, etc.). There are two types of yields:
As of 2024, the average rental yield in the UK is between 4% and 8%. Anything around the 5-6% mark could be considered a ‘good’ rental yield, while anything above 6% could be considered ‘very good’. Some parts of the country can deliver significantly higher or lower returns to others, with location being the most important factor when choosing a buy-to-let property.
Initial Costs
One of the largest initial expenses is the property deposit, which typically surrounds 20 to 25% of the property’s price. Besides this, you need to also consider stamp duty, and other taxes, which increase for second homes or rental properties. If you’d like to read a comprehensive guide of all the fees involved in purchasing a home for overseas investors and how Value Invest can help you reduce them, click here.
Letting Costs
Once your property is purchased, there are further costs involved before you start earning your returns. The property must be cleaned, any repairs should be completed, and you’ll need furniture, appliances, and equipment that tenants may expect, as the property price, and therefore, your ROI will depend on the conditions tenants will have. To comply with legislation, you should also run a Gas and Safety report, besides eventual legal details as the drawn up of the tenancy agreement.
Running Costs
Running costs include costs with potential repairs, maintenance, and other responsibilities. It’s important to ensure the property remains in great condition as we want its value to increase over the years and you’d also want to consider insurance. Landlords also pay Capital Gains Tax and Income Tax, and it’s always best to have professional accounting advice to ensure that your tax efficiency is maximized.
Investing in the UK property market requires thorough research to make sure you’re investing in the right areas, trust in the developers, and patience until completion. With the help of our expert team in Value Invest, we can guide your way to wealth accumulation.
Value invest identifies exceptional properties, pools together the resources of individual investors and purchases properties at a discounted prices:
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© 2024 VALUE INVEST
ALL RIGHTS RESERVED
