A second home in the form of a buy-to-let property was once a sure-fire way to earn yourself a few thousand pounds. The market has taken a slight hit recently after a series of tax changes (including extra stamp duty) were introduced to curb the number of buy-to-let landlords. Although investing in property has become less attractive to landlords already making small profits, it can still deliver a good return.
In fact, the UK is currently enjoying a period of low interest rates and, coupled with unstable stock markets, investing in bricks and mortar could still be a wise move. So if you’re selling an investment property, don’t be disheartened – plenty of buyers out there are looking for buy-to-let opportunities!
What do the tax changes actually look like?
The government crackdown on buy-to-let through a series of tax changes has had a significant impact on the investment property market. Designed to reduce the number of landlords buying-to-let, the changes have made it less appealing financially to own a rental property, especially if you have a mortgage.
This is because mortgage interest tax relief has been cut, making it harder for landlords to turn a profit. Landlords used to claim tax relief on their mortgage interest payments (by deducting the mortgage interest from the rental income), but they’re no longer able to do this. They now pay tax on the whole amount, rather than deducting their mortgage interest when working out profit. Put into practice, if a landlord used to collect rent of £15,000 but paid mortgage interest of £13,000, the tax would only be applicable to the profit – so £2,000. This isn’t the case anymore. Instead, tax is now payable on the whole amount, less a 20% credit on the mortgage interest.
Offsetting your buy-to-let mortgage interest against income tax has been made harder with the introduction of extra stamp duty (3% since April 2016) when purchasing a buy-to-let. Although this has made the pool of potential buyers smaller, the ones that decide to go ahead anyway are likely to be more motivated.
For more information about the recent changes to buy-to-let tax relief, check out Money Supermarket’s excellent guide here.
The steps to take when selling an investment property
Choose your estate agent wisely
As always, make sure you get a good estate agent on board. Organise a few valuations to find out what your property’s worth and, when it comes to choosing the agent to sell your property, decide who you get on with best and who you trust to get you a great deal.
Many buy-to-let landlords aren’t local to their rental property. If you don’t live near the property you’re selling, it’s even more important to find an estate agent you trust. They’ll be hosting viewings and showing off your property, so you need to be sure they’ll get it right. Here at YOPA we have local agents across the country, so if you are looking for a free, face-to-face valuation then click here.
Make it easy for investors to see who their tenants would be
Whoever your target tenant is, make it clear to buyers. If the property you own is rented out to students, make sure the furnishings and decor reflect this – easy maintenance is key, as a future landlord won’t be looking to refurbish the property every year. Likewise, if your ideal tenants are young professionals, keep the interior light and fresh, as they’ll want to put their own stamp on the property. At this point, it’s important for potential landlords to easily visualise their target audience – they want to know the property is going to make them money, preferably as quickly as possible.
Why sell with tenants in situ?
Great tenants are worth hanging on to. Tenants have a legal agreement to stay in the property until their contract ends, so just because you’re selling doesn’t mean they have to leave. If you want to sell untenanted, you’ll either have to wait until their contract ends or come to a mutual agreement of ending the contract early. Before you decide go down either of these routes, consider the benefits of selling with tenants in situ.
Tenants in situ provide buyers with a guaranteed income
Having reliable and trustworthy tenants who look after a property is every landlord’s dream. If you’ve found these people, just because you’re selling doesn’t mean you have to let them go! Selling with tenants in situ is often attractive to investors, as they know they’ll have an income from day one without lifting a finger. Purchasing a buy-to-let with tenants already in place not only means new landlords aren’t in danger of missing out on any rent – they’ll also avoid shelling out agency fees to find new tenants.
Does selling with tenants in situ restrict your buyer audience?
Selling your buy-to-let property tenanted would only limit your buyer audience if your tenants are on a fixed term Assured Tenancy Agreement. The terms of this agreement state that tenants are protected from eviction for the duration of their tenancy term, which could put buyers off if they’re looking for more flexibility.
The only other situation where selling with tenants wouldn’t be beneficial is if you sell to a buyer looking to move in, rather than buy-to-let. You can’t predict who your buyer will be, but if you think it’s likely the property will be sold as a buy-to-let, don’t be put off by keeping your tenants in situ.
Selling tenanted won’t affect your sale price
Sometimes sellers are concerned that selling a buy-to-let with tenants in situ could lead to a lower valuation and therefore a lower sale price. This isn’t the case – a good estate agent should value your property based on the current market conditions, and whether the property is vacant or not isn’t a relevant factor in a valuation. Book a valuation with your Local YOPA Agent to find out how much your investment property is worth, and how to get the best price for it.
Think twice before deciding to sell untenanted. It’s worth it for you too – you’ll have rent coming in right until completion, and for a landlord keen to start making money immediately, having tenants in place could swing the deal.
Buy-to-let is still a good investment
There’s no denying the buy-to-let market has slowed recently, but that doesn’t mean that sellers are now getting less for their investment properties. Buyers determined to invest in a buy-to-let property and who meet the right criteria won’t be put off. People are always going to need somewhere to live, and rents should rise with inflation, giving a guaranteed income even when other industries appear risky. Interest rates are currently favourable too, leading more people to invest in property.
Investment properties still make money – you just need to put yourself in the best position to get the strongest return on your investment.
