Property can be a very profitable way to invest, whether you want to create a nest egg for your children or retire early and follow your passions. It is a good time to invest too because of a growing UK population where property supply doesn’t meet demand. As a result, market prices are increasing and should continue to rise in the years to come.

Lots of landlords are still surprisingly selling-up. This is partly down to significant tax changes which have cut into profits, such as increased stamp duty and no longer being able to claim mortgage interest relief on residential properties.

So how do you approach property investment if you’re new to the market in 2019?

Benefits and disadvantages

There is not one investment strategy that is suitable for everyone. Buy to let property investment has its unique pros and cons.

The benefits are:

  • Opportunities for capital growth. Properties tend to appreciate in value. They are often seen as valuable contributors to your pension pot.
  • A consistent income. A strong portfolio can effectively replace the need to be in full-time employment – freeing up time for other pursuits.
  • Diversified risk. If you’ve already invested in bonds, shares, and gilts, property investment is a great way to spread risk and diversify.

The disadvantages are:

  • Money commitment. Selling a buy-to-let property can be a lengthy process – if you’re averse to tying your money up in one place for too long, it’s probably not for you. Try shares, gilts, or bonds instead.
  • Time and effort. Landlords are often responsible for dealing with maintenance requests, complaints and other tenant-related issues. You can use a letting agent to cut out a lot of the tenant noise. However, it’s still more interaction than you have with stocks and shares.
  • Potential loss of capital and income. Property values can go down as well as up. Unlike most investments, you also have to remember that it relies on tenants paying you promptly and in full. If they don’t, you’ll still have to pay the mortgage.

The affordability of property investment 

Buying the house itself is only one factor among many – there are numerous additional costs to take into consideration.

These can include:

  • Refurbishment. You will need to spend money if the property needs a refurb. These costs may be offset against taxable income.
  • Conveyancing fees. Purchasing a property can be a long and complex process that requires solicitors and licensed conveyors.
  • Stamp Duty Land Tax (SDLT).  Buy-to-let properties with a value over £40,000 now come with an extra 3% surcharge on their value.

Different kinds of property investment

So which kind of property investment should you go for?

The four main varieties are:

  • Single-let properties. The most common type of investment. A house or flat let to a single tenant or family under one contract.
  • Houses of Multiple Occupation (HMOs). A flat or house share where each tenant is bound by a different contract, covering bills and rent. This investment is more challenging as there are more regulations. Having said that, you will achieve greater returns.
  • Commercial properties. Shops, restaurants, and other business premises. These are taxed differently to residential properties – SDLT rates are lower, and the 3% surcharge does not apply. Mortgage interest can be offset against commercial property rental incomes.
  • Holiday lets and serviced accommodation. These have the tax benefits of commercial properties, meaning you can offset 100% of the mortgage against the rental income. They usually require more work than a single residential let, but a good letting agency can handle this for you.

Whatever you choose to do, always seek out expert financial advice from property accountants before investing.

Simon Misiewicz, Tax Consultant at property tax experts Optimise Accountants

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Daniel Peacock

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