Did you know that 4.4 million households were privately rented in England in 2021? As an investor, this is unarguably a fantastic opportunity to advance your portfolio and your profit.
However, as opportunities are always subject to shift and change, there is the time-old debate of whether you should consider buy-to-let or buy-to-sell.
There are numerous reasons why each option would be best for you and your situation, but here are just a few factors to note.
Buy-to-sell takes time, without the reassurance of cash flow
Buy-to-sell can feel like a lengthy process with only limited rewards. Once you find a property, you will most likely need to add value and then sell it to make a profit – on which you are then required to pay tax. You would then need to find and secure a new buy-to-sell project to maintain a healthy cash flow.
The hands-on approach of buy-to-sell takes time, and you have to ensure you make a profit that also covers the costs of acquiring, selling and finance fees. You may also be selling a property that has the potential to be a lucrative asset in the future.
When is buy-to-let the best option?
Renting out your property could boost your income and add steady security to your finances. Buy-to-let makes the most sense when an investor can afford to buy without selling and is looking for a steady income, particularly if the property is in an area of high rental demand.
To decide on your next steps, ask yourself the following questions:
Will buy-to-let make the same profit as buy-to-sell?
Firstly, it is important to decide whether you are looking for immediate cash gains or a long-term investment that will become part of your regular annual income. Buy-to-let properties will not provide the same return on investment in the short term. However, it will provide a more secure and regular income over a longer period of time.
Research is essential when making your next move. Talk to local agents in your desired area and look on property websites to research similar properties to see what rental margin to expect. Will your home require upgrades or renovation? It is best to calculate your rental yield to know potential upfront costs and profit opportunities.
As an investor, can you afford to own two properties at once?
It’s easy to get ahead of yourself when investing. When you are buying to let, keep in mind that you will need to be able to afford to keep your property and invest in another at the same time. Do you have enough funds for an additional mortgage, stamp duty and legal fees?
When buying to sell, while it might feel like a weight is lifted from your finances once sold, the profit ends there. Buy-to-let offers monthly profits for however long you wish to rent out the property, so if you can afford to own two or more properties at once, it is worth the investment.
House price predictions
If you believe your property will rise in value in the future, it is worth holding on to it for longer to reap the benefits of an incredible investment. In January 2022, the average house price in England increased by 9.4%, with The East Midlands showcasing the highest annual house price growth of 11.6%. The North East continues to have the lowest average house price in the UK.
Value vs price
After calculating the buy-to-let yield, you should have enough data to establish whether or not to sell or keep the investment. A high yield in the rental market is worth keeping, but a lower yield in a flourishing sales market would encourage investors to sell and move forward with new projects. The right advisor will be able to help you with making the best decision.
The possibility of landlord responsibilities
At Knight Knox, we sell buy-to-let off-plan apartments that have management companies and letting agents in place, however, becoming a landlord of a property that you plan to manage/let out yourself comes with many responsibilities that come at a cost if not taken seriously. But as an investor purchasing a new-build buy-to-let property, you can rest assured that you can sit back and make a profit without too much, if any, involvement in the day-to-day landlord duties.
Buy-to-let or buy-to-sell?
The best step to take is the one that best suits your circumstances. While both hold many advantages and disadvantages, buy-to-let or buy-to-sell can equally benefit a portfolio.
Whether you have a query about a specific development or are looking for more general information about Knight Knox or the buy-to-let process, we can support you on your journey. Get in touch with us today to find out more.