The pros and cons of buy-to-let investments (2024)

Buy-to-let property investments are a popular choice for people who want their money to work harder for them. But, like any investment, there are advantages, disadvantages and risks associated with entering such a venture. Tax, legal requirements and maintenance are all important considerations. After all, you want to go into any major investment with your eyes open. That’s why we decided to take a closer look at some of the main pros and cons of becoming a landlord.

Advantages

- Secure a relatively stable monthly income from the rent paid by your tenant.
- Own a property that is likely to increase in value over the long term.
- Benefit from substantial control over your investment, unlike with most pension funds.
- Gain scope to expand your property portfolio over the coming years.
- Write-off some of the cost of maintaining your investment, such as mortgage interest and wear & tear, against tax.

Disadvantages

- Take on the responsibility to comply with all relevant legislation.
- Risk accepting a bad tenant who damages your property and/or fails to pay rent on time or at all.
- Pay income tax on the money you make.
- Pay higher rates of stamp duty on your property purchase than a dweller-buyer would.
- Pay capital gains tax on any increase in the property’s value, should you decide to liquidate your investment.

Non-fault evictions

Another major disadvantage for buy to let investors is the new ban on non-fault evictions. This was introduced to protect tenants and give them more stability. As a result, your powers as a landlord to summarily manage your property as you wish are substantially curtailed.

Tenant demographics

Despite projections that so-called ‘Generation Rent’ is set to grow over the coming decades, there are some other factors that could limit your access to reliable tenants. For example, the financial pressures of studying mean that student numbers could be sent into decline. Also, Brexit has seen many European migrant workers quit the UK. Both groups are traditionally very important in the property rental market.

The Compass View of buy-to-let investments

David Mills from Compass said:

“Buy to let investments are something of a double-edged sword. For those who have made it work, it’s been a very fruitful venture. Meanwhile, others have had a nightmare with property damage, unpaid rent and even court proceedings. The tax advantages and disadvantages represent the usual swings and roundabouts – the government generally gives with one hand and takes with the other. Meanwhile, you need to apportion a valuation to your time when making your financial projections because it’s likely you’ll need to invest a lot of this at both regular and irregular intervals. One important note of caution is that the current political instability could well lead to a fall in house prices – not good news if you intend to let in the short term ahead of cashing-in your investment.”

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