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Buy-to-let for your children?

August 18th 2015
By: Melanie

With a booming rental market in urban areas in the UK, buying a rental property seems like an attractive investment opportunity for most parents thinking about a buy-to-let for their children going to University. A staggering one in five households now own a buy-to-let and this is expected to rise from the current figure of 4.8 million to 5.5 million by 2020.
 
So if you are thinking about getting into the buy-to-let market there are a few considerations to contemplate, such as the cost of buying a rental property and how to cash in your investment if you wish to sell.
 
• Stamp Duty- if you are buying a property less than £125,000 you will not need to pay stamp duty, but after this it works on a sliding scale. Please check out this article - Buying a property: Stamp duty reforms - http://www.goodfellows.co.uk/news/307/buying-a-property:-stamp-duty-reforms
 
• Deposit – to access the best mortgage rates in the market place you will need a good deposit, the best deals require a 40% deposit.
 
• Insurance – although your tenants will have their own contents insurance, unless the apartment is for your children, make sure you take out a good building and boiler insurance policy.
 
• Conveyancing costs, these are from around £500-£1,000
 
• Mortgage arrangement fees – from £1,995 up to £4,599 – you might be able to offset this against tax.
 
• Agency fees, this does vary.
 
• If you are planning on renting out your property to give you an income, then any profit after costs will be liable to tax. From 2017 higher rate tax payers will be able to deduct less mortgage interest against tax, which means that potentially it could be harder to make a profit. But some landlords are considering passing these costs on to the tenant.
 
If you are looking at investing in a rental property you will see the best returns if you keep a property for 10 years or more, depending on the state of the housing market at the time of selling. When you go to sell your investment you will need to pay capital gains on any profit you have made, not including the original purchase price. This will be deducted from the final balance along with the cost of buying and selling your investment property and also the cost of improvements. Maintenance and repairs, however, will not be included in these costs as they will be covered by a tax allowance in each year’s tax return.
 
If you are looking at a buy-to-let either as an investment or for a place for your children to live whilst at university and you would like to maximise your investment, why not pop into your local branch of Goodfellows or give our team a call on: 0845 372 7070