It’s a good time to invest in a property that you can buy to rent out. Here’s how this form of investing can offer significant benefits
The UK property market is constantly adapting to both external and internal factors. Whether it’s fluctuating interest rates or new tax breaks, it really helps to understand the landscape if you want to be successful in real estate investing.
One area that has seen a lot of interest in recent years is buy-to-let properties as a form of investment, as they offer strong rental yields and stable income over longer periods.
In this article we discuss why it is a good time to invest in a property you want to rent out and how you can get the most out of this investment.
Insight into the current interest rate environment
Interest rates are one of the biggest factors influencing the attractiveness of buy-to-let investments.
The bank of England sets these rates based on the general state of the economy and they act as a way to stabilize things like inflation.
They also have a direct impact on mortgage rates, which in turn affects the profitability of owning rental properties. Recently, we have seen a fluctuating interest rate environment, largely influenced by economic policies aimed at stabilizing economies post-pandemic.
Lower interest rates can significantly reduce the cost of borrowing, making mortgages more affordable. This creates an opportune time for investors to secure financing for buy-to-rent properties at a lower cost, potentially increasing their return on investment.
However, it is crucial to stay abreast of the economic outlook and interest rate forecasts, as rising interest rates can increase mortgage costs and affect profitability.
The appeal of buying into a limited company structure
One of the most strategic decisions facing buy-to-let investors is whether to purchase property as an individual or through a limited company, known as a special purpose vehicle (SPV).
In recent years, setting up an SPV Ltd company has become increasingly popular, and for good reason. The benefits of this approach are numerous and include:
Tax efficiency
The main benefit of investing in buy-to-let property through an SPV Ltd company is tax efficiency.
Companies pay corporate taxes on their profits, which can be significantly lower than the higher individual income tax rates. This difference can result in significant savings, especially for higher or additional rate taxpayers.
Additionally, investors can deduct mortgage interest and other allowable expenses when operating through a limited liability company before calculating tax liability.
This contrasts with the tax treatment for individual landlords, who may be limited in the amount of mortgage interest they can offset against rental income, especially under recent tax changes.
Profit retention for reinvestment
Investing through a limited company allows profits to be retained within the company, allowing reinvestment in additional properties.
This can happen without the immediate tax consequences that individual investors may face, allowing for faster expansion of the real estate portfolio.
Estate planning and succession
A limited liability company structure can offer advantages in terms of estate planning and succession. Shares in the company can be transferred to family members in a tax-efficient manner, helping with accounting and simplifying inheritance tax management or succession planning.
Access to business loans and mortgages
Businesses have access to a wider range of business loans and mortgages, some of which can offer more favorable terms than those available to individual borrowers.
Lenders often view limited companies as less risky, especially if they own multiple properties, leading to potentially better interest rates.
Considerations before investing in buy-to-let
While the benefits are compelling, potential investors would be wise to consider several factors before diving into buy-to-let investments, especially in the context of a limited company structure. Some of the most important considerations to take into account in your decision are:
- Initial installation and ongoing costs: Establishing and maintaining a limited liability company involves costs, including accounting and legal fees. These must be weighed against the potential tax and operational benefits.
- Availability of mortgages: While there are advantages to borrowing as a business, some lenders may have stricter criteria or higher rates for limited companies compared to individual borrowers.
- Regulation and tax landscape: The regulatory and tax environment for buy-to-let properties is subject to change. Investors should stay informed of potential changes that could affect the viability of their investments.
Find the right investment with buy-to-let properties
Investing in buy-to-let property can be a lucrative venture, especially in the current interest rate environment and with the strategic use of an SPV Ltd corporate structure.
The potential for tax efficiency, profit reinvestment, and estate planning benefits make it an incredibly attractive option with a lot of potential.
However, it is important to do thorough research, consider costs, and stay abreast of the changing economic landscape. This way you can ensure that your real estate investment will yield a significant return in the long term.
Ifthikar Mohamed has passed awaydirector of WIS Mortgages – visit https://wishypotheken.co.uk/ or call 020 3011 1986
Because a mortgage is secured against real estate, it can be repossessed if you default on mortgage repayments.