Exploring the differences between landlords and buy-to-let property investors

If you’re considering investing in your first buy-to-let property, it’s important you consider all of your options to minimise risk and maximise profit. Here we explore the differences between investing in property as a landlord vs. becoming a BTL property investor…

How much will it cost?

Landlords are very much dependant on cash flow and need to save a considerable sized deposit or rely on bank lending in order to purchase a property. When purchasing a BTL property, landlords are required to pay 3% stamp duty, as well as the usual fees and costs associated with any property purchase, including solicitor fees, surveys and searches and, once purchased, letting agent fees. It’s also likely that a newly-purchased property will require some form of refurbishment in order to attract the right tenants.

Property investors have the option of investing much lower amounts in BTL property (as little as £10,000 when investing with Hubb). When you consider the average deposit for a first-time buyer was just over £44,000 in 2017/18 (1), property investment offers a much lower point of entry. It also creates an opportunity to invest in multiple properties and to quickly build a property portfolio.

How much time will it take to manage?

In order to effectively manage a BTL property, landlords will need to take a very ‘hands-on’ approach and be involved in the day-to-day management of their investment. This includes liaising with letting agents and lenders, dealing with tenants and tenant disputes, as well as managing property maintenance, routine repairs, emergency call-outs, inspections, plus the associated accounting and rental/expenditure reporting.

Property investors operate a very ‘hands-off’ management approach and benefit from a team of property experts who work on their behalf to not only source the best yielding and most secure investment opportunities, but to also take care of all the day-to-day tasks. This allows investors to simply focus on their financial returns and growing their portfolio.

What ROI can I expect to receive?

To calculate a realistic return on investment, landlords need to consider all operational costs, including management fees, utilities, insurance, maintenance and repair costs, as well as any possible changes to the market. An allowance for void periods (no tenants) will also need to be calculated. The UK average rental yield was 3.6% in 2018 (2).

Property investors can expect to achieve interest returns between 4-8% p.a. which is paid monthly, quarterly or annually throughout the duration of the investment term. The level of return will not be affected by market changes or periods of void as contingency lines are built-in to the overall opportunity to cover these costs if required. The financial management is therefore very simple, with property investors simply needing to manage their personal income when their returns are received.

Final word

With the right buy-to-let property, landlords can expect to achieve net rental yields between 3-5%, but a significant amount of time will need to be invested in the management of the property, tenants and administrative tasks.

Whereas property investors can reap the benefits of using the skills and experience of property experts in order to achieve interest returns between 4-8% p.a. There is also no involvement in the day-to-day management of the property, creating a hassle-free and rewarding investment.

If you would like to know more about investing in BTL properties, please get in touch with the team at Hubb.