By Louise Misiewicz
Does your property business deliver a consistent return?
Are you unsure how to grow your property portfolio?
This is the fourth and final part in my latest property blog serialisation, I’m looking at how to make money from property investment – last week’s Part Three can be reviewed in full here.
Last week I reviewed critical factors for successful property investment in the UK, and took a closer look at the rise in popularity of build-to-rent, as well as the ongoing case for investing in buy-to-let properties.
What are the main issues affecting property investment now?
The last two factors I wanted to share with property investor readers here on how to make more money from property investment are related to financial factors driving growth in the sector, including:
Issues affecting property prices: Property investment is governed by the same basic rules that affect any asset. When demand exceeds supply, prices go up, and when supply exceeds demand they don’t.
However, this can lead to financial uncertainties for property investors, as I advise my clients.
When, for example, the financial crash hit, investment in new commercial property dropped rapidly and it stayed depressed for some time afterwards. Speculative property development vanished and financial institutions such as banks and lenders were trying to reduce their bad loan books, so borrowing became incredibly difficult for many property investors in the UK.
As a result of this, when demand for commercial property started to revive as the UK economy recovered, there weren’t enough developed spaces available for investment. This still remains the case, as supply accelerates to catch up with demand across the country for commercial property developers.
Before it does, rents have been given considerable support. Development in the property investment regions outside London have seen a huge increase in demand, as these areas slowly come out of decades of stagnation that followed the closure of key industries. I advise my clients on key property areas to invest in.
Overseas money is also moving into the UK, as property investors look for a return on their assets that will beat the rates of interest on offer from more traditional low-risk assets. Such property investment has also been behind the incredible rise in property values in central London. I monitor these assets for my clients.
This trend unsurprisingly attracted the attention of the Treasury, which, in an attempt to make money, introduced higher stamp duty charges. This had the unintended consequence of knocking residential values down accordingly, and prompting developers to adjust their plans where possible to provide new accommodation at lower prices. This means that my property investor clients are wary of price rises.
It’s also important to understand and react to other factors that influence property values, as this can determine the profitability of a property investment portfolio significantly at any given time.
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Get your buy-to-let property investment sums aligned: The private landlord in the UK has been targeted by the government in a move to raise more taxes. I spend a lot of time advising my clients here.
Some of these measures have yet to come into force in full, but it is essential to take proposed legislation into account when looking to develop or expand your property business.
One of the most significant changes has been the three per cent stamp duty surcharge – introduced last in the last budget announcement – payable on secondary properties in the UK. That includes holiday homes that are not rented out.
In fact, the legislation even catches people out who complete the purchase of a new home to live in before they complete the sale of an existing property. You then have to claim a refund after you have sold your existing home.
I also advise my clients of new legislation that came into effect this April, which cuts the amount of tax relief you can claim on a buy-to-let mortgage.
Unlike conventional mortgages, where tax relief has been abolished, buy-to-let mortgages had until then been eligible for tax relief. This is now being phased out over the next four years, and for some buy-to-let landlords it could mean that being a property investment landlord becomes uneconomical.
The best way to avoid many of the financial burdens as a property investor is not to have a mortgage at all, but for many that’s just not an option.
There are ways to reduce your tax liabilities. The easiest way is to switch a second home into the name of your partner – if they are not earning a salary or are earning less than you, their tax bill will be lower.
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I have written relevant articles for property investors which will provide useful additional reading and resources, including:
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