Over the last twenty years, getting into buy-to-let investing has become more popular. Everyone, it seems, wants to make money from it.
But how do you do it successfully and avoid falling foul of government regulations? That’s the topic of this post. We take a look at some of the things everyone should know about buy-to-let investing so you can be successful.
It All Depends On Supply And Demand
Many investors go into buy-to-let investing believing that the market is fixed. You buy a certain property, and you are entitled to a specific return.
But that’s not how it works in practice. Just like any other market, it is heavily dependent on supply and demand. When the demand for rentals goes up in an area, so too do returns. Likewise, when the supply rises, there is more competition, forcing down the price.
It’s critical to understand these dynamics as a buy-to-let investor. Once you have a firm grasp of what’s happening, you are much more likely to succeed long-term.
It Is Regulated By Various Laws
You should also be aware that buy-to-let investing is regulated by various laws. That’s because it involves people’s shelter, something that’s important for their survival. You should note that as a landlord, you may not be able to throw people out, even if you own the property outright. You may also need to follow rules around health and safety, energy efficiency, tenancy agreements, deposits, evictions, and dispute resolution.
You May Have To Pay Various Taxes
Another challenge you might face on your property investment is having to pay income and property taxes. For example, if you make money on a property you sell, you could be liable for capital gains taxes. You may also need to pay additional income taxes if you withdraw funds from your business and use them personally.
Because of these rules, it is essential to track your expenses. Landlords that run limited companies can deduct many expenses, including depreciation, from their accounts, reducing their taxable income at the end of the financial year.
You Need A Lot Of Capital
You will also discover that you need a lot of upfront capital to get into buy-to-let investing. Banks will only lend to you if you give them a substantial deposit upfront as security.
For this reason, getting into the buy-to-let sector can take a long time. You need substantial cash savings before you can move forward and start your empire. If you don’t have them, it can make the process feel slow and expensive, especially compared to other more divisible forms of investing, such as buying stocks.
You Must Pay Ongoing Expenses
Finally, you should also be aware that you need to pay ongoing expenses if you plan on getting into the buy-to-let investing scene. You can’t pass all of them onto tenants.
The biggest cost is usually depreciation or loss of value of the building you are renting out. However, you will also need to pay maintenance, insurance, and estate agent letting fees.
