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6 Mar 2019

Property renovation vs. Buy-to-let (BTL): what’s the best way to invest in property?

Author: Grace Watson

If you’d like to invest your money in property there are several different options to consider from buy-to-let investments and property renovation opportunities to buying a new build to sell on or investing abroad.

With TV shows, social media and property blogging platforms selling the aesthetic benefits of property development, it can be tempting to consider developing and renovating a property over renting it out. But what are the pros and cons of renovations, according to our industry experts? We’ve explored them all for you, so you can find out.

Renovations

Pros

  • You can make a good, quick return by purchasing savvy – investing in the right property is paramount
  • You can make your own mark on a property, enabling you to 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 relatively stress-free purchasing process

Cons

  • 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

How does investing in a BTL compare?

Generally speaking, the pros and cons of investing in a property to let are longer term, in comparison to investing in a development or renovation opportunity. Here’s some of our top considerations:

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.

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 a few cons to consider too, though. These include: covering the cost of an empty property during void periods (including mortgage repayments, council tax and utility bills) and increased Stamp Duty payments.

However, the majority of your BTL investment can be managed by a reputable lettings agent, such as Romans. Richard O’Neill, Managing Director of Lettings, comments, “Our lettings services are designed to make property investment manageable and stress-free for landlords. We offer several levels of management services, meaning that there’s an affordable and suitable option for every landlord.”

He continues, “If you’re new to property investment, our Fully Managed service will teach you all you need to know about being a landlord. Our specialist team of Property Managers are responsible for arranging legislative and compliance matters, meaning that you can relax safe in the knowledge that your property and its tenants are safe and well looked after throughout the tenancy agreement.”

Want to discuss your property investment options with one of our experts? Contact your local Romans lettings branch, or call our specialist Investors team on: 01344 988 759.

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