This in-depth guide covers everything you need to know about the world of buy-to-let investing in 2024, including potential profits, risks, getting started, and alternatives to consider.
Key Facts
26% of landlords make a cash loss on their properties (HMRC)
Average landlord profit is £15,000 per year before tax (Shawbrook Bank)
U.K. private rental market worth £1.7 trillion (Propertydata)
Learn what buy-to-let investing is, how it has changed, potential profits, risks, getting started, and alternative investments to consider
What is a Buy to Let??
Buy-to-let refers to the investment practice of purchasing a property specifically to rent it out and collect income from tenants rather than living in it yourself. The rent ideally covers the mortgage, taxes, maintenance costs, and then some for a profit.
How Has Buy-to-Let Changed??
Regulatory changes like new lending criteria, tax relief Phase-out on mortgage interest, and required licensing for HMOs (houses of multiple occupation) have increased buy-to-let’s costs and complexities in recent years.
How Have Buy-to-Let Profits Changed??
Profits have been squeezed due to the phasing out of mortgage interest tax relief, increased stamp duty costs on second properties, and more regulation. However, strong property price growth and rising rents have helped offset these impacts.
Is Buy-to-Let Still a Good Investment??
Yes, for investors able to take the hands-on landlord approach required and with enough cash reserves to cover costs during void periods. Quality properties in desirable areas with strong rental demand continue performing well.
Advantages of Buy-to-Let?
Can generate passive income
Potential for capital growth over the long-term
Mortgage can be paid by tenants
Tax advantages like mortgage interest deduction
Disadvantages of Buy-to-Let?
Unpredictable and high costs from repairs, taxes, mortgage payments
Risk of vacant periods with no rent
Dealing with problematic tenants
Being an active landlord is time and effort intensive
How Do I Get Started with Buy-to-Let??
Save a large cash reserve for all the upfront and recurring costs
Get pre-approved for a buy-to-let mortgage
Research locations and properties thoroughly
Calculate expected rental income vs expenses
Decide if managing yourself or using an agent
Market the property and vet tenants carefully
What Are Some Good Alternatives to Buy-to-Let??
Real Estate Investment Trusts (REITs)?
REITs (Real Estate Investment Trusts) allow investors to gain exposure to income-producing real estate without the hassles of direct property ownership. A REIT is a company that owns, operates or finances income-generating real estate across a variety of property sectors like offices, retail, residential, healthcare and more.
By maintaining a diversified portfolio of properties and qualifying as a REIT for tax purposes, these companies can pass along a significant portion of their taxable income to investors in the form of dividends. This allows individual investors to benefit from the potential for stable rental income streams and long-term appreciation in property values.
One intriguing REIT opportunity is New Capital Link’s Assisted Living Project. The fund aims to develop and acquire high-quality assisted living communities across the UK, meeting the escalating demand from an ageing population. Duncan Bannatyne, of Dragons’ Den fame, serves as a director for this project.
Expressing his enthusiasm, Bannatyne stated, The organisation’s commitment to improving the quality of life for the individuals they serve aligns perfectly with my own values.
Duncan Bannatyne – OBE, Dragons Den
REITs provide investment diversification, liquidity through publicly traded shares, and exposure to real estate’s income and growth potential without the tenant headaches or significant capital requirements of direct property ownership.
Property Bonds?
“Bonds provide a steady income stream with relatively low risk compared to buy-to-let.” – Arif Mushtaq, Director of Ashbrooke Investments
Government and high-quality corporate bonds provide fixed interest payments with liquidity unlike direct property ownership.
Private Equity Real Estate Funds?
These funds actively acquire, develop, and sell properties to generate returns for investors while leaving the heavy lifting to professional managers.
Investing in Buy-to-Let: Hints and Tips?
Get a rental estimate in advance from letting agents
Budget for a mortgage rate rise of 2-3%
Carefully vet tenants with credit/background checks
Prioritise locations with strong job markets, transport links, amenities
Use a property management company to reduce time/hassle
FAQ’S
Is 2024 a good time to become a landlord? 2024 presents some challenges but also opportunities for new landlords. On the positive side, strong rental demand and home price appreciation in many areas provide a healthy investment environment. However, higher mortgage rates, increased regulation, and the phasing out of mortgage interest tax relief have made buy-to-let more costly in recent years. For those with sufficient cash reserves to cover periods of vacancy and able to take a hands-on landlord approach, 2024 can be a good entry point from an affordable standpoint before prices rise further.
What are the tax changes for buy-to-let in 2024? The biggest recent tax change impacting buy-to-let is the full phase-out of mortgage interest tax relief by 2024. Landlords can no longer deduct mortgage interest from their rental income to reduce their tax liability. Instead, they receive a 20% tax credit based on a portion of their mortgage interest. This has made a significant dent in profitability, especially for higher tax bracket landlords. Other taxes like stamp duty, capital gains, and income tax on rental profits remain unchanged.
Is there a future in buy-to-let? Buy-to-let remains a viable investment strategy with strong fundamentals underpinning demand for rental housing. However, landlords may have to work harder for diminishing profit margins going forward as increased regulation and tax changes weigh on returns. Overextended or inexperienced landlords will likely struggle, but those who invest prudently in high-demand areas and manage efficiently can still profit well, especially if they’re in it for the long-term capital appreciation.
Is buy-to-let dead in the UK? No, the buy-to-let market is far from “dead” in the UK. While more challenging than in past decades, it still represents an enormous £1.7 trillion sector of the housing market. Millions of properties are still let privately, providing shelter for over 20% of UK households. However, the traditional buy-to-let model of generating big monthly cash flows is fading, replaced by a greater emphasis on long-term capital appreciation through wisely selected rental properties as part of a diversified investment portfolio.
New Capital Link helps investors across the U.K. build property investment portfolios through carefully selected buy-to-let, REIT, and development opportunities.
“Real estate remains one of the most rewarding long-term investments when executed properly, Our role is guiding investors through the due diligence and portfolio construction process.”
Rachel Buscall | Ceo Of New Capital Link
Contact New Capital Link today to discuss your investing goals.
