Do you have an exit strategy from your Buy to Let investments?

April 8, 2013 - PRLog -- It’s not that investors necessarily know that’s what they are asking, more that they just enquire if they should start to acquire more properties or start off-loading them.

Then there’s the inevitable “How much tax will I pay..” if they sell a certain property or “How many properties do I need to buy to live comfortably in retirement?”

In the end, it all amounts to the same thing; that is, knowing how and when you want your buy-to-let investment to end. Only then will you know where to start.

The reasons for entering into B2L in the first place fall broadly into three camps.  It could be as a pension, for financial freedom or to pass the property on to the next generation.

Simon Tebbutt of Bournecoast says: “There are two aspects of the first two. First, one is able to generate income from properties owned. Secondly, the capital growth can be re-invested once the properties are sold.”

Leaving property to one’s children is an inheritance issue that would typically require generating capital growth or selling part of the portfolio to cover inheritance costs.  Then the beneficiary can move in and take over the running costs.

Most people desire a combination of capital growth and rental income from a buy-to-let property but with the stagnation of house prices in today’s climate that may not be as easy as in the past.

Simon added, “Properties likely to go up in value typically give a lesser yield, so you aren’t likely to generate much income unless you buy the property outright. Properties giving higher returns are usually not found in areas where properties are growing in value.

“Many landlords forget that they buy property to make money and tend to stick with tenants they like - rather than take on new tenants - who will pay a higher rent.  An experienced agent will ensure you are always on the best products to meet your goals, otherwise you may have to delay your exit.

“It’s also advisable to undertake a bi-annual valuation of your property, along with rent and mortgage reviews, to estimate your level of equity.

“If you don’t set growth or income targets, how do you know you have invested your money in the right asset?  You won’t know whether you should sell up or retire now, or whether you should buy more properties or even if you should be cashing in…..  It’s much like running a business without a business plan. The bank wouldn’t lend you money without one and the business would end up going nowhere.”

Bournecoast estimate that landlords should look for a minimum of 125 per cent rental income compared to the monthly mortgage payment as that is what lenders demand, but be mindful that this income is subject to tax, so you may not want to exceed this figure considerably.

“Landlords with larger portfolios will typically borrow as much money as possible while keeping it self-financing – and let’s not forget the 10% of your rental income that will inevitably be required for maintenance,” says Simon.

“This type of investor who is less concerned about drawing an income, will keep borrowing money against their investment properties as property prices rise. They will use the capital drawn to redeem their own residential mortgages quickly whilst mitigating income tax on their investment properties.”

According to the national giant Rightmove, 30% of B2L investors expect a minimum gross yield of five per cent which is quite an ask when house prices haven’t seen any significant change in the past five years.  

For more information how your money can work for you, contact the friendly team at Bournecoast on 01202 437888 or www.bournecoast.co.uk to discuss options of B2L.

-          ENDS  –

Words : 645

Background:

In 2010 Bournecoast celebrated it’s 50th anniversary and has been family run since it’s inception when it was established by Major & June Webb in 1960.  Keith Simmons MBE, the previous managing director and Major Webb’s son-in-law, was then joined by his son and daughters, Des Simmons, Veronica Strongman and Anita Smith, who now run the company with a team of eighteen staff.

Bournecoast Property Agents have extended their skill base within the ever changing property market.

Over the past 52 years Bournecoast has invested in a skilled – and award winning - workforce, ensuring each member of the team enjoys dealing with people and property whilst ensuring their knowledge of the whole property market is second to none, providing advantage over most local agents.

Issued by:

Alex Eaton

Chartered Marketer

Marketing

Bournecoast

alex@bournecoast.co.uk

01202 437888