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26 April 2015

Thinking about investing in buy-to-let?

Mike Wragg, an associate in the residential property team, looks at just some of the legal implications of the increasingly popular buy-to-let market.

Booked a cruise, splashed out on a new car, bought a buy-to-let property… thanks to the new regulations that made it easier to access a pension pot from 6 April, the possibilities are now endless for those who chose to spend and invest, rather than save, for their old age.

While the former two are unlikely to make too much of a dent in the bank balance, utilising your hard saved cash to purchase a house or flat for the purposes of renting it out and generating an income is a much more serious decision.

Thanks to the challenges that many families face in securing a mortgage these days, buy-to-let has become big business, and in 2014 the private rented sector made up 19 per cent of households in England. Before you take the plunge however, there are some things you need to know:

Home sweet home

If you’re buying to rent, look at the practicalities of the property and treat it as a business investment, rather than viewing it as you would your own home.

An empty property can make a huge dent in your profits.  If tenants have a choice of similar properties, you want to ensure they choose yours so keep the décor plain and simple, repaint, replace and refurbish regularly.

Leasehold landlord

If you’re buying a flat, it’s going to be a leasehold property, so it’s important to factor in who takes responsibility for looking after issues such as the cleaning, maintenance and supervision of community and parking areas.

For a not-so-small fee, management companies will employ managing agents to take care of these responsibilities, or you can become more involved in the decisions yourself.  Owning a property in a block of flats usually allows you to become a director of the management company, but it can be both time-consuming and labour intensive.

DIY tenants

Choosing your own tenants can be one way to ensure that only the favoured few make their home in your precious investment. Although choosing this approach might save on letting agent fees, it is not to be undertaken lightly.

Advertising the property, contacting references, doing credit and background checks, compiling inventories and ensuring the deposit is safeguarded in an appropriate tenancy deposit scheme are just some of a landlord’s duties. And you have to understand the legalities of a landlord-tenant relationship – not for the faint-hearted.

“We all know of someone who has bought property and made a considerable profit over the years and, given that house prices in London and the south east are still seeing the strongest growth, entering the buy-to-let market can be a worthwhile investment,” says Mike.

“To counter that however, you have to look at the risks, the fact that the costs of buying the property in the first place are not inconsiderable, and that in the majority of cases there will be ongoing fees in terms of agents and service charges.

“In addition, such time as you sell the property, you will of course have to pay capital gains tax as it won’t have been your primary residence.”

If, after taking all those factors into consideration, you still want to pursue investing in a property, Mike recommends speaking to a specialist property lawyer and an independent financial adviser.

“This is unlikely to be a short term game and we know property prices can go down as well as up but, if you take a longer view, then becoming a buy-to-let landlord can reap rewards,” he concluded.

To speak with a member of the real estate team about the legal implications of buy-to-let investments, call 01753 279021 or email resproperty@bpcollins.co.uk.

Stay in touch

Phone: +44 (0) 1753 889995

Email: enquiries@bpcollins.co.uk

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