Don’t make these buy-to-let mistakes: an expert guide to property investment
Property investment experts from Redmayne Smith share their top four mistakes to avoid when entering the buy-to-let market
If you’re looking to generate a steady stream of income and create long-term financial growth, investing in buy-to-let properties serves as a lucrative endeavor. With rental costs continuing to rise with Zoopla reporting that there was an 11.1% increase in costs for newly let properties in the last 12 months, investors have the opportunity to generate a strong cashflow.
However, without the correct knowledge and guidance, novice investors can fall prey to common mistakes that can hinder long-term investment success and lead to financial losses.
1.Conducting Inadequate Research
Whilst the prospect of investing in buy-to-let properties may be exciting, one of the biggest mistakes a potential investor can make is diving into a buy-to-let investment without conducting thorough research. And by failing to analyse market trends, monitoring property demand and assessing rental yields can result in poor investment choices.
“The wrong property can make or break an investor’s portfolio, so my biggest piece of advice for new investors is to conduct thorough due diligence” comments Gordie Dutfield, CEO of Redmayne Smith, “It doesn’t matter how nice your property looks if it is in an area without decent capital growth or high rental demand.”
A property’s location should also be a significant factor in the research process to ensure prospective investors see the greatest return for their investment. By ignoring investment opportunities on cities that are seeing huge regeneration such as Glasgow, Manchester and Liverpool which have emerged as the top 3 best UK cities to invest in outside of London**, potential investors will be missing out on highly profitable opportunities.
2. Underestimating Property Upkeep
Overlooking the maintenance costs associated with owning a rental property is a common oversight made by inexperienced investors. From regular repair work to unexpected emergencies, allocating sufficient funding for a property’s upkeep is imperative to ensure tenants remain satisfied and the property is kept in the best condition.
Abi Hookway, Managing Director of Redmayne Smith, comments: “One of the biggest mistakes made by amateur property investors is not planning ahead for predictable costs, like the upkeep of homes. Personally, I put away 10% of my income every month to ensure that my tenants live in good quality homes. This has provided me with loyal, long-term tenants – earlier this year, I had to raise my rents and didn’t receive a single complaint.”
3. Ignoring Financial Planning
Investing in a buy-to-let property entails significant financial commitments. Neglecting to devise a comprehensive financial plan that encompasses ongoing expenses, mortgage payments can severely impact the profitability of a property. What’s more, a key mistake many investors make is not having a clear understanding of how to enhance their tax efficiency.
Gordie Dutfield adds: “By setting up a limited company to hold and manage rental properties, investors can take advantage of lower corporation tax rates compared to personal income tax rates; this can also offer flexibility in terms of tax planning alongside having the ability to retain profits within the company or distribute them as dividends.”
4. Monitoring Legislation Changes
Navigating the legal aspects of buy-to-let investments is vital to avoid legal troubles and financial liabilities. Ignorance of landlord obligations and complying with legal regulations can result in costly legal disputes, thus impacting your overall investment.
For example, back in December 2020, the government announced new standards for rental EPC ratings, requiring a rating of ‘C’ or above. The changes have been made to help make homes much more energy-efficient and will apply to all tenancies from 2025.
“Future landlords need to plan ahead for the upcoming changes to EPC ratings” Abi Hookway adds. “Following this announcement, I would highly suggest new investors explore investing in new build or off-plan properties, as 80% of these have the highest ratings of ‘A’ and ‘B’.”
Overall, prospective buy-to-let investors should ensure they are equipped with the necessary tools to navigate the buy-to-let market successfully achieve their financial goals and ensure a successful return on investment.