www.InvestmentGuide.co.uk
www.InvestmentGuide.co.uk Other types of Direct Property Investment
PROPERTY
(Also called Buy To Let)
You buy residential property (e.g. a house, flat or small block of flats) which you let to a tenant or tenants and you receive rent as an income. A residential lease usually lasts 1 or 2 years and you can review the rent depending on what is agreed in the lease or if the tenant want to take a new lease. Rents on new lettings are determined by your agreement with the tenant only. Rents on some tenancies which started before 1998 may be regulated by previous laws.
Who can invest Anyone 18 or over.
How worthwhile Good value for taxpayers if you don't mind the problems of being a residential landlord. The value of residential property is related to residential property in general, not to the rent which you can command. The income return is generally lower than with Property Commercial Direct Investment. However property is generally much easier to sell vacant than commercial property. Residential property in London and the South East of England has risen sharply in value since 1996 and in the rest of the country since 1998-1999. These strong price rises have now come to an end but few bargains are yet available. However bide your time and there could be rich pickings, e specially if an owner has to sell. There are large regional variations in the price of residential property and also in the way in which property prices change.
Minimum £100,000 upwards. Less if you borrow to buy.
Maximum None.
Suitable Lump sums.
Money back You can sell your property. You will usually get a better price if it is vacant.
Interest You get an income from the rent. This can be paid by standing order or you can employ managing agents to collect it at around 10%-15% of the rent; they will also at as a buffer between you and the tenants.
Interest paid Usually monthly.
Tax Rent after deduction of expenses (e.g. agent's fees and repairs not paid for by tenants) is liable to income tax. Basic taxpayers pay 22% tax on rental income. No tax is deducted unless you live abroad. You get full income tax relief on any interest paid on a loan to buy a property provided it is less than all your rents. See also tax on rents. When you sell or give the property away, the gain is liable to capital gains tax.
Fees to pay Legal costs when you buy or sell of £250-£700. Since 28 March 2000 when you buy for purchases £60,001 to £250,000 1% stamp duty; £250,001 to £500,000 3% stamp duty on whole price; over £500,000 4% stamp duty on whole price. Estate agent's costs of management about 10%-15% of rent (including finding a tenant). Estate agent's costs for just finding a new tenant usually 8%-10% of rent. Estate agents will provide a standard lease or you can buy one from a legal stationers. Estate agents costs when you sell around 2%. VAT on all except stamp duty.
Children Unsuitable directly but property may be held by a trust.
Risk Moderate. The investment is not easily sold. If tenants stop paying rent, you may have extra legal expense.
How to invest Get advice from more than one firm of residential rental estate agents in the locality in which you want to invest. Certain types of properties which are less attractive to owner occupiers (e.g. on main roads) cost much less to buy but can still be rented. However such properties may be more difficult to sell and appreciate by less if house prices start to rise again.
Where from Estate agents.
Other types of Direct Property Investment
Last updated 2
September 2008.