If you’re wondering if you should invest in a buy to let in London, you really need to think about the reasons you’re investing in buy to let, and what you want to get out of it in the long and short term.

You need to be able to answer some simple questions:

●Do you want capital growth?
●Do you want to invest for the rental income?
●Do you want a combination of capital growth and steady income?
●How long are you prepared to have your money tied up in your investment for?

There are several reasons why people get into buy to let but it’s usually either viewed as a solid
investment for the future, a way of making passive income immediately, or both.
You may want to begin or continue investing in buy to let as you feel like it’s a reliable way to
make a steady income. On the other hand, maybe you want to invest in a property now so that
in several years you can either sell it, or pass in on to a family member. You might not be
bothered about making a profit, as long as your cash is invested in something solid that will
hopefully rise in value over the years to come.
No matter the reasons you’re choosing to invest in buy to let, here’s some helpful advice if
you’re trying to make the decision of investing in London.
Why is London not the first choice for buy to let landlords?
If you’re looking to get into buy to let as a career, London isn’t the most popular choice with
landlords. This is mainly because the rental yield in London isn’t as high as what you could
expect in other parts of the country. Many buy to let landlords opt for areas in the north of the
country, where property prices are lower and rental yields are higher.
Landlords don’t have the capital needed
Property in London is comparably expensive compared to everywhere else and many landlords
don’t have the capital to invest. Even if you do, you’re choosing between spending your money
on possibly one property in London, or two (or even three) somewhere else.
Stamp duty rises
The recent rises in stamp duty on second homes or buy to let property (since the 1st April 2016,
anyone buying a property which will not be their main home will have to pay a higher rate of
stamp duty) are fairly significant. Unlike the regular Stamp Duty, there is now an extra 3pc
charged as a flat rate on the overall cost of the property. This is making London’s high property
prices look even more unattractive to potential landlords.
Example of regular stamp duty:
If you’re buying a house for £275,000 you would pay no tax on the first £125,000. The next
£125,000 will incur a 2pc tax charge of £2,500 and the remaining £25,000 will get another rise
of 5pc worth £1250. This is a total bill of £3750.
Second home stamp duty:
With the extra 3pc added onto any property purchase over £40,000 this would increase that
£3750 charge to £12,000!
Lower rental yields
Rental yields are also an issue. As property prices are so high in London compared to the rest
of the UK, the gap between the cost of mortgage repayments and the amount of money you can
expect in rent is usually considerably smaller.
Earning a small yield means you’re likely to be in more trouble financially if anything goes
wrong, like long void periods, the rent not being paid on time or repairs that need to be carried
out. Investing in property in London to rent is more of a risk if you’re reliant on the rental income
to pay the mortgage and don’t have anything to fall back on if plans don’t work out.
Why do some people choose London for buy to let?
Many people choose London for their buy to let because it’s where they live and work. Keeping
an eye and managing property when it’s closer is easier than buying at the other side of the
country. If you’re planning on using an agent to manage the property (which many people do if
the property is far away) this could seriously eat into your rental profits.
If you’re purely looking at a buy to let property as a long term investment but you’re not bothered
about making a huge profit in rent then London could work very well for you. As property prices
in London keep rising, it makes it much more likely that you’ll get a higher profit when you come
to sell the property. For a long term investment perspective then this makes sense, although as
mentioned there will most certainly be a higher rate of capital gains to pay.
If you wish to rent out property to a specific market (young banking professionals) then there are
ways you can increase the capability of earning higher rental yields, however this will involve
some effort. Some investors buy lower end property in up and coming areas popular with young
bankers (the Isle of Dogs is a popular spot for this), make considerable conversions to the
property and then rent out by the room. This can mean a higher profit, but it’s also harder work
as the tenant turnover is usually more rapid.
What to consider if you’re set on buying in London
If London just seems like the more sensible choice for you, try to make the most calculated
decision you can on where to buy. As well as considering up and coming areas and locations,
you should also consider the type of property.
What kind of property is best for buy to let in London?
There are no hard and fast rules, but there are some helpful generalisations you can keep in
mind when looking at property to invest in.
Period property vs new property
Period property
If you want to keep your yields as high as possible, be wary of older period properties. Although
they generally hold their value far better and therefore tend to sell quickly, they are more prone
to having high maintenance costs. Older properties need regular maintenance and it’s more
likely there will be expensive structural issues you’ll have to deal with during the course of your
ownership.
New builds
New properties tend to have lower maintenance costs, but if you’ve bought a property with a lift
and concierge service then you should be wary of high service charges. You might be able to
rent the property out easily, but the rise in capital may be slower than a period property
(especially if there are lots of new developments close by). If it’s in a good area, it should still be
easy to sell when you’re ready to move on.
There are ways that you can get better deals from developers. If you’re less bothered about the
exact location and can be more flexible, here are a few pointers that could help.
●Keep an eye out for companies going into administration and make offers directly to the
administrator.
●Developers are usually in a rush to sell off remaining units in order to secure finances for
their next projects. Try offering on buildings in completed flats where most of the units
have been sold, you’re more likely to get a good deal.
●Developers (like those listed on the stock market) may be focussed on booking sales
within the current financial year and therefore be more flexible in price to secure deals in
time. Offering around one month before the end of this period can mean you get a
bargain (you can find this information usually online or on the company’s website).
Location
It’s wise to research as much as possible about a location before you buy. This will allow you to
spot good buying opportunities when they come up. It will also help you narrow down the best
streets to concentrate in within your chosen area. In each area there will be streets that are
more popular with renters and therefore produce a higher rental yield, it’s wise to locate these
and stay set on securing property within these areas.
Transport
Obviously looking for somewhere that has great transport links is important if you’re buying in
London. Renters want to get to work quickly and easily, especially if you’re going to rent to
young professionals. Keeping an eye out for where there are set to be improvements in
transport infrastructure can help you find property that will experience a steep increase in value
and rental yields in the coming years.
Regeneration
Areas where the council are spending a large amount of money on regeneration projects usually
mean that the demand for rentals in that area is set to increase. The building of Westfield in
Shepherds Bush, the gentrification of East London and the Crossrail service has caused a
boom in property and rental price in those areas.
Conclusion
Buy to lets in London are still popular, although it’s not the best choice if you want to make a
steady income with minimal risk. Despite this, property prices in the capital have proved to be
more secure than anywhere else in the UK, consistently rising each year and recovering faster
after blows to the economy.
Before making a decision it’s important that you consult a property tax expert or financial
advisor. Not everyone’s circumstances are the same and it’s essential that you get bespoke
advice that specifically fits your current financial situation and future goals.
If you found this article helpful and you’re interested in more information that could make your
life as a landlord easier, we can help. Visit our blog homepage for free downloadable rental
documents, advice, guides and even a free 60 day trial of our service.

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