19 Tips When Buying Investment Property

The 2023 and 2024 UK property market is expected to slow down with the cost of living up, energy bills up, mortgage costs up with interest rate rises.  In addition, some landlords may offload properties given new fire safety regulations and energy performance certificate requirements.

Ashley Roberts-Clark, Director of FinancialAdvice.net sets out his 19 tips when he buys investment property:

Why are you buying?

• Is it for income, growth or to enjoyed as a holiday let?  Make sure you are buying with your goals in mind.

Be aware of the taxation position.

• Capital gains tax free annual allowance is currently £12,300 pa.  This is being reduced to £6,000 in April 2023 and £3,000 in 2024.  If you are targeting capital growth, you will pay more taxes.  CGT is 18% for basic rate taxpayers and 28% for higher rate tax payers on property when compared to gains on other investments at 10% and 20% respectively.
• Income tax personal allowances are frozen and the starting point for 45% tax rate will be £125,140 from April 2023.  We are all going to pay more income taxes.
• Councils are going to be allowed to double council tax on holiday homes (2^nd homes) if you do not let them out.  Holiday Lets currently register for business rates which can usually be zero.  Clearly, this is low hanging fruit that will likely end up paying taxes in the future.

Beware regulations

• Energy performance certificates must be a minimum grade C from 2025 for new lets and 2028 for existing tenancies.  What remedial insulation and heating replacement costs will you incur if the property is grade D or below?
• Fire Safety (England) Regulations were published in May 2022.  What remedial fire door, fire escape and fire alarm replacement costs will you incur if the property is grade D or below?  This affects blocks of flats and Houses of Multiple Occupation (HMOs) – bedsits and student type accommodation mainly.
• If buying a HMO, you need to HMO regulations in general as they now affect any property that two or more households living in it.   
• What are the servicing fees in apartment blocks?  How long is left on the lease?  Is the freehold owned by the flat owners as part of a management company?  How well is this run?
• Are there any cladding issues or indeed older lifts that are going to need replacing?

Location

• Remember, you are not buying your own home, you are buying an investment property.  Is there demand for it in the area?  You are buying in a location to be able to rent the property out or if a holiday let, would you go on holiday there?

Ongoing Costs

• What are the costs of maintenance?  Service charges?  Communal charges?  Letting agent’s fees?  Condition and age of property in general for hidden expenses/repairs to come?
• Likely damage/wear and tear costs for properties e.g., will you allow pets?  There is a new Bill moving through Parliament that will soon allow pets for all tenants as well as there are already requirements that you cannot exclude tenants on benefits or many immigrants e.g., Ukraine refugees or asylum seekers (assuming they have a right to remain).

Costs of Borrowing

• If you are planning to get a buy to let or holiday let mortgage, know that the usual maximum loan to value is 75%.
• Rental cover required by lenders is usually around 145%.  This means that if the mortgage required is going to cost £1,000pm, the lender would expect the market rent, as assessed by valuer, to be at least £1,450 pm.  With interest rates rising, with potential rent on the property still cover this?
• For holiday home lets, you also have the added problem that whilst a holiday let rent is higher than a normal tenancy, you will have to factor in ‘voids’ i.e., a period when the holiday let is empty and you are receiving no rental income.  Again, the lender will look to the valuer on the likely average rent including voids.

Ashley Roberts-Clark’s preferences

• Prefer smaller properties rather than large ones.  Owning 5 properties each worth say £100,000 is better than 1 property worth £500,000.  In later years, if you want to do other things with your capital, it may be easier to sell just one cheaper property with lower capital gains taxes and costs to release equity rather than being forced to sell the whole £500,000 property and getting hit with a high capital gains tax bill.  1 empty small property with the other 4 rented is better than no tenant and no income if owning just one larger property and it is empty.
• Prefer properties in high demand areas such as university towns, medical school towns and big infrastructure project towns e.g., HS2 construction or Newquay ‘Spaceport’ staff demands.
• He does like property in major holiday resort towns.  You have the option then for locals, seasonal workers or holiday let options.
• Always look for net yield.  Savings deposit Interest rates are currently at 4% pa, if your net yield on the property is going to be 5% pa then it is not worth the hassle.  Ashley always looks for yields at a minimum of 7% pa.

Contact  Call Back  Calculators  Our Fees