Is your money better invested in property renovations, or buy-to-let (BTL) investments?

Tue 05 Mar 2019

If you’re contemplating investing your money in property, you’ll likely already realise that there’s several options to think about. From buy-to-let investments which you will rent out and property renovations to selling on new builds and investing in homes abroad, there are many opportunities available to choose from.

The aesthetic benefits of buying property to renovate are widely documented on social media, television and online, meaning it can be tempting to consider renovating a property, as opposed to buying one to rent out. But just what are the pros and cons of this, according to our industry experts? Read on to find out.

Property renovations

Benefits

- You can make a quick and healthy return by investing in the right property - this is paramount

- You can make your own mark on a property, meaning you can get creative!

- You can cut development costs by doing the work yourself, if you’re up for the challenge

- The Capital Gains Tax (CGT) you would have to pay is now just 18%

- You can find some hidden gems if you buy at auction, and you’ll know the property is yours as soon as the gavel falls, meaning a stress-free purchasing process







 

Setbacks

- It takes time to develop property, so you need to be prepared for the market to potentially fluctuate by the time you come to sell it again

- You will need to manage the development yourself or pay someone else to do it which will eat into profits

- You need to establish strict budgets – and stick to them! – to make a profit

- There is often an array of unexpected expenses you need to make contingency plans for

- It can take a long time to sell a property, and you will still be responsible for the upkeep and mortgage repayments during this period, if a mortgage is applicable

- You may have to pay the mortgage on more than one property, if you own another home or choose not to live in the one you’re renovating

- It’s possible that you could make a financial loss

 

Purchasing a buy-to-let property to rent out

The pros and cons of investing in a property to let are generally assessed over a longer period of time, when compared to purchasing a renovation project. Our top things to think about, if buying-to-let is on your mind include:

Long-term investment and growth – Although house prices have fluctuated in recent years, property is still a relatively safe long-term investment, meaning you could make a healthy profit when you come to sell your rental property, having already benefited from rental income over several years.

You can offset costs against tax – Each tax year you will need to complete a Self-Assessment Tax Return for HMRC and pay a tax bill, but you can offset some of the cost of tax, including:

- Interest on your BTL mortgage repayments

- Fees paid to letting agents or management companies

- Council tax and bills, if you cover these as opposed to your tenants

- Cost of advertising your rental property, if you choose to do this yourself

- The cost of repairs and maintenance works







 

Tax relief is also available to cover renovations to furnishings, carpets and sofas as well as maintenance repairs. This does not, however, include home improvements such as extensions.

There are some setbacks to consider, too. These include: being prepared for the cost of an empty property during any void periods where your property is not occupied by tenants (mortgage repayments, council tax and utility bills still need to be paid, even if you don’t have a tenant in situ), plus increased Stamp Duty payments each time you buy a property you aren’t going to live in.

Despite these considerations, the good news is that your BTL investment can be managed by a reputable lettings agent, such as Leaders. Emma Wells, Managing Director of Lettings, comments, “The lettings services offered here at Leaders are designed with you in mind. Our property management service makes for a manageable and stress-free experience for our buy-to-let landlords, and our diverse selection of management services means there’s an affordable and suitable option for every landlord.”

If you’d like to discuss your property investment options with one of our experts, simply contact your local Leaders lettings office today, or call our specialist Investors’ Choice team on 0333 3363 4535.