If you are new to property development, you may be wondering whether choosing buy-to-sell or buy-to-let is the most lucrative option for you.
Call us on 01825 749721 to get started.
At Hunter Finance we specialise in fast funding, for clients who have heard “no” from the bank.
This means we offer:
- A decision as to whether we will provide funding within 48 hours of application
- Loans that cover 100% of building costs, allowing you the freedom to fast track your project completion
- 12-month repayment rates
Since our repayments usually work on a 12-month timeframe, our developers most often choose buy-to-sell because this allows them to purchase, renovate and sell the property on, then pay their loan back within the allocated time frame.
Additionally, although buy-to-let saw its time of popularity at the start of the decade, there has been a notable decline in its success and popularity.
Why did buy-to-let fail?
In the early 2000s, those with the funds available to do so took advantage of cheap property by purchasing homes in the hope that they could then sit back and relax, earning rent on these properties while housing prices continued to rise.
However, the introduction of new government taxes and a fluctuating market put an end to this dream and research from 2019 showed that the number of new landlords getting mortgages has dropped by 60% since 2009.
According to the trade body UK Finance, in 2007 183,000 mortgages were approved for landlords who wanted to invest in new properties, but by 2018 the number of buy-to-let mortgages that were being given out in 2018 dropped below 70,000, while thousands of landlords began offloading existing properties each month.
In 2015 the government began to increase more regulations on buy-to-let properties, aware that too many landlords were purchasing properties and making it impossible for first-time buyers to get onto the property ladder.
The regulations introduced included new tax rules such as:
- Whereas previously landlords could rid 10% of their required tax payments on maintenance costs (even if they had not spent anything on maintenance that year) after April 2016 this reduction only counts for the cost of replacing furniture and building work.
- Previously landlords could deduct the interest they pay on their mortgage from the income they declare in taxes, but this is no longer possible.
- There used to be a cap on the rental income you paid e.g. if your rental income was £10,000 and your mortgage payment was £6,000 you would only pay tax on £4,000.
In summary, the new regulations hit high-earning buy-to-let landlords hardest and make what was once an easy way for well-off people to earn some extra income quite complicated and tax regulations that meant little returns.
Is buy-to-sell still an option?
Luckily for property developers, buy-to-sell projects are not impacted by the same tax regulations and there still exists ample opportunity to earn a rewarding profit on both commercial and residential developments.
If you want to calculate how much rental income you would receive on a property VS how much you could earn by selling it, you can use this advice to learn how to calculate your buy to let yield.
Once you have an idea about the expected yield, this will help you make a more informed decision about which option will provide you with the highest GDP.
The factors which impact a developer’s success with a buy-to-sell project includes:
- The wider UK economy
- Interest and tax rates
- Health and stability of local and wider property market e.g. the number of potential buyers available
- Location: an appealing area will always sell quicker, however, what counts as “appealing” can depend on the buyers you are trying to attract, and shifting trends. An appealing area may be based on aesthetic appeal e.g. next to a river or beautiful view, or it may be a central location and popular amongst young buyers, or it may be because this area has a lot of job opportunities and school facilities.
- Home size and aesthetic appeal: it is important that your home has enough space especially if you are targeting family buyers. Make sure to find reliable partners e.g. builders and decorators so that the finished home is appealing for potential buyers.
- Age and condition: generally, newer homes have a higher value. This is great news for property developers, as we are often building the home from scratch in order to sell it on.
Generally, there is a large opportunity to make a profit in buy-to-sell.
You should aim to make a 25% profit on GDV and do your research and calculations to ensure this is possible through your particular investment.
Preparing for this kind of markup is essential to a) make money and b) mitigate your risk.
The end of buy-to-let is arguably a good thing, as the intention is to allow younger generations to get a foot in the door when trying to buy a property.
However, if you are looking to make a career in property development, buy-to-sell remains a strong option.
Are you ready to see impressive financial returns through buy-to-sell?
At Hunter Finance we have over 10 years of experience in the property development industry.
Property page updated on 29th April 2021 by James Bougon