Traditionally, property has tended to be deemed a safe asset in which to invest. While people will always need homes in which to live, buying a home outright is financially out of reach for many people – helping to explain why the UK buy-to-let market has had a long run of success.
Alas, for investors, the financial appeal of this market has faded in recent years, as a number of tax changes have left buy-to-let landlords with less in their pocket. Nonetheless, in 2021, there remain meaningful benefits to reap from buy-to-let as well as the alternative of property bonds.
Should you step away from buy-to-let completely?
It’s true that the buy-to-let market can be a costly one to enter. There’s a buy-to-let mortgage deposit for an investor to make room for in their budget, while homebuyers have to pay an extra 3% of the property’s value in stamp duty if they wish to rent out the home.
However, once you have overcome these hurdles, you can take comfort from knowing that, over time, someone else will be covering your mortgage, insurance, maintenance and letting fees – provided you find a tenant who stays in and looks after the property for the long term.
You can profit not just from the monthly rental fees you charge but also what you are given for your property when you sell it, as its value is likely to increase over time. Ideally, you will originally buy the home during a lull in the market before selling during a boom period.
Are property bonds ultimately less hassle than buy-to-let?
A property bond essentially acts as a loan you can lend to a property developer, allowing them to fund their next construction project and you to enjoy a share of the financial proceeds it generates. Therefore, you wouldn’t be actively involved in developing or managing the property itself.
As a result, you can sit back and appreciate the passive income stream your property bond brings, unencumbered by maintenance fees, stamp duty, council tax and insurance payments – all of which could eat into your financial takings were you to go down the buy-to-let route instead.
Even if the property you are helping to fund will be used for rental purposes, you won’t yourself have to look for tenants and conduct background checks on them. Also, property bonds can deliver fixed returns of up to 12% per annum – immensely high by buy-to-let standards.
Property bonds do, however, come with hindrances of their own. For example, as they are typically issued for only one project at a time, the returns can be relatively short-term. Property bonds can also be difficult to sell to other people – at least quickly – compared to other types of investment.
If you are struggling to decide between buy-to-let and property bonds for your next move into UK property investment, we can provide guidance. Our property investment experts and consultants can be reached by phone on 0207 096 0125 or email via firstname.lastname@example.org.