One of the oldest forms of investment is buying properties and renting them out to tenants. Since renting flats became a possibility, buying a property as a business rather than for our own use has become a great option for investors.
Is it a good idea to buy a property to let? Is it the right decision in all economic climates? Let’s take a look at how you can make the most out of a buy-to-let property. What are the pros and cons of this kind of investment?
Investing in property
How many times have you heard people talking about property as an investment? Probably plenty, especially in certain circles. From a very young age, we’re taught that owning a property is one of the best decisions we can make and that we should put our savings into a house as soon as we can.
It’s true that buying a house is a way of investing in our comfort, protecting our finances to some extent, and, perhaps, starting a business in an affordable manner by renting out the property.
Despite fluctuations in the popularity of buying to let and in the economic situation in general, the idea that purchasing a house is a positive step persists – and with good reason. Even in circumstances when property purchases might be approached more cautiously, buying to let is still a good move.
Investing in property always opens up new opportunities. It’s an asset that will grow in value from the outset (unlike cars, where the opposite happens) and that will always be part of your estate. Property is a medium to long-term insurance policy that can help you recover from a financial knock by giving you rental income, allowing you to remortgage or providing you with somewhere to live.
Buying to let – what are the advantages?
In recent years, property prices have stabilised following some very steep rises in the years preceding the 2008 economic crisis. Although house prices may initially appear expensive, an in-depth analysis shows that the value for money in relation to the cost is actually very fair.
Meanwhile, the rental market in some regions and cities has seen exponential growth and rapidly increasing rents. This is the first argument in favour of buying a property to let as an investment.
If you do the maths, your mortgage is sure to pay for itself with the monthly income you’ll receive from the rent and you’ll own a property without it costing any of your own money. What better investment could there be than one that costs you nothing and leaves you with a valuable asset?
If you buy a property to let, you’ll end up with a secure asset that costs you little to nothing.
Another advantage of buying to let is that a house is a tangible asset and investing in something that you can physically touch or see gives a far greater sense of security. On the other hand, if you invest in cryptocurrency or some other kind of product that you have no control over, it’s far riskier despite any assurances you might be given.
These days, renting a property tends to be very quick and there’s always a market for it. As long as you're realistic and set a standard price instead of aiming to get rich on the rent, you’re certain to find a tenant for your property. Lately, fairly priced rental properties that have been well looked after spend less than 24 hours on the market.
A reliable monthly income If you buy a property, you’ll have to make monthly repayments (unless you pay it in full in advance) but if you rent out your house, you’ll receive a larger sum than your mortgage repayment. That’ll give you a reliable monthly income that will help you and your finances and cover the costs of your investment risk-free.
Don't forget to think about tax relief for property purchases and rentals that are beneficial to both parties. If you buy a house, you’ll get tax incentives in your tax returns. In recent years, the Spanish government has encouraged property rentals by making the associated costs and 60% of the rent generated by the property tax-deductible for owners.
Buying to let – what are the disadvantages?
It would be negligent to overlook the potential disadvantages or difficulties involved in buying to let. Like everything in life, there’s also a downside but there are always things you can do to mitigate these problems.
If you buy a property, even if you're intending to let it, you’ll have to hand over an initial sum of money as a deposit and pay notary and mortgage fees, etc. That means you’ll have to make an initial investment before obtaining any income, so you’ll need savings to allow you to take this first step.
It’s not a liquid asset. If what you want is immediate liquidity, this isn’t the investment for you. When you buy a property, the liquidity you obtain won’t be immediate – you’ll have to wait until you've let the property and make sure the rental payment is higher than your monthly mortgage repayments.
Non-payment of rent. The risk that your tenant won’t pay their rent is always present, but there are a series of measures you can take to minimise and avoid this risk. There are agencies that guarantee you’ll receive the rent and ways of protecting yourself if this situation occurs. Non-payment is the risk involved in this investment. And in the end, every investment carries a risk.
You’ll need time to manage your investment. Like any other investment, you’ll need to dedicate time to looking for a tenant and then to fulfilling their needs.
Make sure you set some money aside for any costs arising from the property. Even if you’re renting it out, as the owner you’ll have to pay for certain outgoings so make sure the rental payment is higher than your monthly mortgage repayments so that you have some money left over for these costs.
In conclusion, are buy-to-let properties a good investment? They certainly are. And now is a very good time to purchase property. That said, it’s an even better idea to choose a house that would be suitable for you to live in if you decide to stop renting it out. At ASG, we have plenty of experience with this kind of investment and can guide you through the process. Feel free to get in touch to discuss your options.