A buy-to-let can be a great financial investment, but there are several common mistakes buy-to-let investors make that stop their investment being as profitable as it might be. Here are 5 common mistakes buy-to-let investors make that should be avoided.
Not researching the area
If you don’t research the area you’re considering investing in thoroughly enough, you’re unlikely to know what type of property you should be investing in. Vacant periods are costly, and can make a buy-to-let investment completely unprofitable, so it’s important to ensure your property has broad appeal and will be in high demand.
Not researching the target market
The easiest way to ensure your property is in high demand is to understand your prospective renter. If you’re targeting family renters you’ll want to ensure any outdoor space is family-friendly, if you’re property is in a popular student area you don’t want to spend lots of money on a high-end finish. Know your audience and pitch your property accordingly.
Not keeping up to date with legislative changes
Recently there have been several changes that have impacted the buy-to-let industry. A 3% stamp duty hike, tax relief changes and new wear and tear rulings have all had an impact on buy-to-let investors’ profit margins. If you don’t keep up to date with legislative changes, you could well be landed with an unexpectedly high tax bill that could cripple your investment.
Not considering expenses when calculating your annual yield
When calculating your annual yield, it’s likely you’ll take into account any monthly mortgage payments, but there are several other expenses that should also be considered when working out how profitable an investment is likely to be.
Expenses may include:
- Income tax on rental income
- Administrative costs – this will include reference checks, inventories and drafting contracts and tenancy agreements
- Appliance safety checks and servicing/maintenance
- Energy Performance Certificates (EPCs) and property marketing costs
- Letting agent/management costs
- Any vacant period when rental income will not be generated – as a rule of thumb, you should anticipate at least month a year vacancy to allow for tenant changeover etc.
- Monthly mortgage payments
- Insurance
- Additional 3% stamp duty when purchasing an investment property
- You’ll also need to factor in Capital Gains Tax if/when you decide to sell the property.
Not researching alternative investment opportunities
A buy-to-let investment doesn’t necessarily mean a traditional residential property. Did you know that the average residential buy-to-let offers an annual return on investment of just 4.17% before expenses*? By contrast, some UK holiday lets could provide a guaranteed return of 8%**! The most profitable investment is not always the most obvious investment, so it’s important to explore all of the options available to you and think carefully about the profitability of any investment.
If you have a former buy-to-let property and like the idea of trading it in for a UK holiday let property, speak to Quick Move Properties today about their property part exchange service. If you’re interested in buying a UK holiday let as a new investment, Quick Move Properties have UK holiday-let properties available at sites throughout the UK. For more information, contact the team on: 01793 840917 or email: px@quickmoveproperties.co.uk
*Average residential buy-to-let annual return data taken from The Telegraph
**www.theretreatdevon.co.uk
