Five Great Tips for Thrifty Buy-to-let Landlords
Buy-to-let is still a popular goal for many as property is one of the safest long-term investments, especially as it’s tangible and you can control a lot of factors, such as decor and facilities, to bring in extra money.
However, one thing that stands in the way of many dreams is the upfront cost of buying an investment property. BTL properties need bigger deposits than residential ones and there’s also the second-home Stamp Duty levy to contend with.
Thankfully, we have some golden tips to help you to reduce the costs of starting up or expanding your buy-to-let empire. Read on and thank us later…
Don’t get married
At least, not yet. If you’re married or in a civil partnership you’ll be penalised more than couples who aren’t married.
If you buy your BTL property before you tie the knot, you could be a few thousand pounds better off as married couples or those in civil partnerships count as one person for Stamp Duty.
This means that even if only one of you owns a home, once your spouse buys a property, you’ll be liable for the 3% second-home Stamp Duty supplement.
Buy a doer-upper
Tired, neglected or downright tumbledown properties sell slowly, despite all the TV shows which would have us believe living in a muddy building site is great fun.
Not only is this particular market slower, it’s cheaper, which means a smaller Stamp Duty payment. This in turn means you can plough some of those savings into your refurbishment project.
These days, energy inefficient properties are unpopular as they literally burn money due to the costs of energy. If you find a doer-upper and improve its energy efficiency you’ll increase your equity and be able to ask for more rent.
Pitching in with your builders is another way to reduce your renovation costs, even if you’re just helping to fit kitchen cupboards or sanding floors. Some people have learned how to pour concrete floors and plaster walls to save money this way (do leave the electrics and gas to the experts, though).
Don’t go chasing trends
Ignore the Victorian properties and the brand-new eco homes with smart this and smart that. These particular markets are very competitive and your chances of finding a bargain are low.
You’re buying a place for someone other than you to live in, so just focus on decent and safe, not stylish or space age.
The same goes for location. Your tenants are unlikely to live in your property forever, so a few years in a slightly less cool neighbourhood isn’t a huge problem. It might be a huge saving for you, however, so think outside the box and the postcode.
Use your existing home as a buy-to-let
After all, you’ve already bought it!
If you work from home or you’re planning to set off travelling for a year or more, then you could move somewhere cheaper with your laptop or use your home to fund your travels.
You’ll need to make sure your lender will let you switch to a BTL mortgage and change your household insurance, as well as ask a friendly letting agent what sort of rent you can charge.
Buy-to-let mortgages have lower loan-to-value ratios that max out at 80% and your lender will probably want your rental income to be at least 125% of your monthly mortgage payments.
Buy a limited company that already exists
One of the main obstacles for landlords in starting or expanding their portfolio is the level of purchase tax. As well as the standard Stamp Duty rate, landlords pay a second-home supplement that adds an extra 3% to the purchase price – a significant upfront sum.
A big barrier for landlords wanting to start or grow their portfolio is the Stamp Duty supplement of 3% on top of the standard levy.
However, if you buy a limited company which owns investment property among other assets, Stamp Duty on shares is a mere 0.5% and there’s no second home levy. There’s other advantages to this, too:
- You’ll pay corporation tax of just 19% on profits, even if you’re a higher rate taxpayer
- You can claim the whole monthly mortgage payment as an allowable deduction
- There’s no capital gains tax liability when you sell the property as long as you keep the profits from the property within your company (for growing or improving your portfolio)
There are fewer products for limited companies when it comes to buy-to-let mortgages, but some high street lenders do have some available, as do specialist lenders, so talk to an advisor.
