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With buy-to-let tax reliefs going, what are your property investor options?
Buy-to-let landlords have, for the most part, had it good over the last few years. Being able to benefit from low rates of interest and an increased appetite (or requirement) for renting from the general population, the tax reliefs added to this have made it an appealing proposition for property investors for years.
With the tax reliefs, these were focused around the interest rates on mortgages, of which you could claim back a percentage of them based on your income tax bracket. This allowed landlords to offset the cost of any mortgage interest rate payments on their accounts, before calculating their buy-to-let property profits - and as it was based on income tax brackets, it meant additional rate tax payers could claim back 45%.
In the Summer 2015 Budget, however, the Chancellor announced plans to effectively scrap this approach. Instead, over a rolling four year period from April 2017, the tax relief able to be claimed on mortgage interest payments will be reduced to 20% for all landlords.
What's more, landlords were able to claim a 'wear and tear' allowance, whereby tax relief was available on the depreciation of furnishings, regardless of whether they were replaced or not. In the same Summer Budget, it was announced this would be removed, and was done so entirely as of April 2016.
So whilst buy-to-let is undoubtedly still an option for property investors, it's generally appreciated that it's not as attractive as a proposition as it once was.
Therefore, as a new property investor, if you're looking to get started with property investing - or build out your investment portfolio - and want to steer away from buy-to-let, where can you invest your money?
The options available to property investors today
Late last year, we published a piece that talked in-depth about property investments, giving you a full overview of everything related to investing into property.
Accompanying our ' integrating property investments into your portfolio' guide and 'an introduction to property investing' webinar, it offers up a great insight into the numerous options and possibilities property investing presents.
And even a quick scan through it will show just how many opportunities are available for property investors away from buy-to-let.
For example, if we stay on the residential property route, we have options such as Student Accommodation, Houses Of Multiple Occupation, the Private Rented Sector (PRS), Off Plans and Refurbishments.
Conversely, if we look at commercial property investments, we have office, industrial and retail opportunities.
With the opportunities within these then broken down into four primary styles - Core, Core Plus, Value Add and Opportunistic - you've also got a higher level decision to make between whether you want to invest primarily for growth or for income (or, theoretically, both).
By reading the last three paragraphs alone, you can begin to see just how varied property investing is - and why you don't need to shy away from making property investments just because buy-to-let isn't as attractive as it once was.
How do you make a decision on which property opportunity to invest in?
One of the most difficult decisions you'll have to make as a result, however, is which property opportunities you should invest in. The variety is undoubtedly fantastic, but when you have options, you have questions.
We always recommend taking professional advice before making any form of investment, but one of the first questions you'll most likely be asked is that mentioned above - whether you want to invest for growth or for income (i.e., do you want to invest and ideally see a return after a period of time, or do you want to invest and see a regular yield?).
It may sound like somewhat of a high level question when you have a whole host of variables to take into account, but making a decision here can help reduce the options from which you have to choose.
For instance, if you're looking to invest a lump sum into an opportunity with the aim of seeing a return after a period of several years, and have a preference for residential opportunities, you may want to consider a residential development project, such as Chilton.
Targeting a 1.5x multiple of money return, it's anticipated that returns would be seen within an 18 month period from the date work starts. Therefore, if you invested £10,000 into the property opportunity today, you could expect to see a return of £15,000 - should the target be met - by the end of 2019.
On the opposite side - investing for income - residential buy-to-let opportunities have obviously been the 'go to' for such investments, but access to other income-based opportunities are more readily available than ever before.
Property funds or REITS (Real Estate Investment Trusts) are an ideal example. Investing your money into such funds can pay six-monthly (sometimes quarterly) dividends, obviously dependent on the funds' performance.
Similarly, there are some very interesting and innovative fintech products that are seeing new property investment opportunities come to the market that can realise monthly returns, such as property bonds. These are particularly new, but it's without doubt exciting to see how they will continue to grow.
And of course, it's important to keep in mind that as with any investments, returns from property opportunities aren't guaranteed. But this itself can be mitigated with property, as diversification is particularly easy to achieve with property alone (which is something we've touched on directly).
Property investing is about so much more than buy-to-let
Whilst buy-to-let has long been a favourable option for property investors - particularly those looking for a monthly yield - it's in no way the only option available.
A sector that has a wealth of opportunities available, there's genuinely an option for most investors, almost irrelevant of everything from what your aversion to risk is right through to what your requirements from financial investments are.