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Do you want to be a landlord or an investor?

09.10.20

Gareth Watkins - Investment Marketing Manager

The concept of becoming a ‘buy-to-let landlord’ has long since passed into the cultural mainstream, along with concepts like ‘flipping’ houses. It is a simple enough concept: buy a property, preferably one that is undervalued or which you can renovate, and rent it to private renters, earning a profit on the difference between the rent they pay and the mortgage that you pay. There are an estimated 2.66m private landlords in the UK (down from 2.8m in 2017), and 30% of them own more than one property.

So, if you find yourself with a sizable amount of money to invest, should you become a buy-to-let landlord? Tax and regulatory changes have caused two-hundred thousand buy to let investors to leave the market. The tax changes which disallow the cost of interest have destroyed profitability of many buy-to-let investments. Add that to Stamp Duty Land Tax rises and the additional 3% SDLT levy applied to buy-to-let landlords, and the cost of entering into the buy-to-let investment market has increased hugely.

As a result, investors are turning to fixed income bonds, and often property bonds issued by reputable companies. Bonds are far quicker and easier to purchase than property, the amount of cash required to invest is far lower and the returns are often higher and more regular. If you have chosen a well-structured bond with a reputable company then you’ll never have to worry about your rent being paid late or not at all or a burst pipe wiping out your earnings.

There are disadvantages; investors in bonds don’t gain from potential capital growth of owning properties directly. The other down side of property bonds is that if you pick the wrong company your capital is at risk, so research into the bond issuer is absolutely crucial and you should ideally only invest in a company with a long track record and sound business plan.

The right property in the right location can still benefit from good capital growth, even if net rental yields are low. The problem is, you will need a large investment or mortgage to be able to purchase a buy to let property and it requires day to day management. Therefore, to maintain a balanced and flexible property based portfolio, there is probably a place for both buy to let investments held in companies and fixed income property bonds which provide you with a predictable return each month.

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