How to make your capital work for you
The recent announcement that interest rates are likely to remain at their current low level for at least the next two years is good news for borrowers but not for those of us who rely on income from capital investments and savings to maintain our lifestyles. So, how can we make our capital work better for us?
Many financial advisers today are advising their private clients to consider using part of their liquid capital, currently earning in the region of 1-2 %, to invest in property on a buy-to-let basis, which is likely to generate a more attractive 6-8% return on investment. Whilst buy-to-let requires a greater effort initially, once established its management can be arranged to require little or no input from the owner.
If you are thinking of becoming an investment buyer you’ll need to make some early crucial decisions including:
- Where do I buy?
- What do I buy?
- Do I fund it solely with my capital or partly with one of the many buy-to-let mortgages that are currently available?
- Do I find the tenants and manage the letting myself or do I appoint a managing agent?
The answers to these questions depend entirely on your personal circumstances and will be different for everyone. As a guide you should be looking to buy a property in an area where there is an ample supply of tenants prepared to pay a rent that gives you a good return and that will easily sell in the future; either to another investor or to an owner occupier with the expectation of some capital growth.
Much of the research into purchase prices and rent levels can be done on the Internet using the websites of the Land Registry and the likes of Zoopla and Right Move. Nothing, however, beats on the ground information gathering – getting to know an area by visiting it and speaking to local estate agents, letting agents and other landlords.
Given today’s low buy-to-let mortgage interest rates, experienced financial advice should always be sought in order to help you decide if you should just use capital or part capital and part mortgage – it may be that your capital can be used for more than one buy-to-let if mortgage finance is used for each!
When buying an investment property it is also very important that your solicitor is experienced in buy-to-let transactions.
An experienced solicitor will have the answers to the many questions you have and, importantly, make all the necessary checks, including whether your property requires a ‘change of use’ to comply with any Article 4 Direction planning regulations relating to a let of three or more non-related persons.
If you are considering a buy-to-let approach for the first time I recommend enlisting the services of a qualified and experienced letting agent to ensure that all your obligations as a landlord are met. These include the condition of the property and amenities, its contents and commencement of letting, particularly in relation to any deposit bond taken from the tenants. These letting agents’ fees will take a small chunk of expected income; however, these fees are an allowable expense deducted from the rent when calculating income tax payable. Suffice to say that advice of an accountant with experience of buy-to-let properties should always be sought.
By and large the more experienced landlords prefer to manage the letting of their investment properties themselves and also often join the local Residential Landlords Association. At regularly held meetings they network with other local landlords and benefit from industry speakers, information and articles shared at events.
Offering greater returns for a more secure future, whatever property bought it’s better than money in the bank … how much harder could your capital be working for you?