As one of the most diverse forms of investment available, property provides an opportunity to invest via various methods and across numerous investment structures. Whether you are a new or experienced property investor, you will need to make a number of decisions to ensure you’re investing in opportunities that are right for you.
Here we explore the differences between landlords and property investors, to allow you to make a more informed choice.
Landlords independently source, purchase and manage their own investment opportunities. So what does this involve…?
- Substantial deposits and often bank lending
Becoming a landlord is very much dependant on cash flow and requires a considerable sized deposit or investment fund in order to purchase a property. A landlord then takes on the responsibility for the subsequent ownership, rental and management, and/or sale of property..
Landlords will often rely on bank lending and mortgages to fund their property purchase, and therefore agreeable interest rates are required to ensure the lending does not affect the profit from the development or rental yield.
- ‘Hands-on’ management approach
This type of investment requires a great deal of time and effort to ensure the investment pays off. This will include dealing with estate agents, solicitors and tenants, managing maintenance, repairs and emergencies, coordinating insurance policies and more.
It’s important that, whilst managing the day-to-day tasks of owning a property, the focus remains on the reason for the purchase – to generate a positive return.
- Tax relief benefits
Before the change in legislation, landlords were snapping up buy-to-let properties in order to benefit from the relief that could be claimed and deferred against tax for mortgage interest payments and other allowances.
Whilst still available, a change in legislation has introduced a cap on this primary tax relief, alongside an increase in stamp duty, which has resulted in many landlords, particularly those in higher tax brackets, selling their lower yielding properties (or in some cases, their entire portfolios) with a view to investing in more lucrative, property investment opportunities.
Property investors invest in property through a fully-managed investment scheme or opportunity, administered by property experts. How is this different to being a landlord?
- Lower financial entry point
Property investing is often seen as being a lower risk investment option due to a lower financial entry point than that of a landlord.
This method requires investors to select opportunities based on their desired level of financial commitment and review a repayment schedule that outlines how and when capital is likely to be repaid, plus the potential interest.
- Hassle-free, capital-only investment
Property investors generally prefer a ‘hands-off’ approach and invest in property as a capital-only investment. The property development team will update investors on major milestones and project progress, but the investor is not required to have any involvement in the day-to-day management of the property or project.
- Easier to diversify
Depending on the level of capital available, a property investor has the option to be involved in multiple properties simultaneously. This allows investors to spread any risk and quickly grow their portfolios, whilst landlords are limited to the number of properties that their funds allow.
Whilst ultimately, the investment goals of a landlord and a property investor are the same, the road to get there is quite different. Understanding the differences can help make the investment choice that is right for you.
If you would like to discuss your property investment requirements, please get in touch with the team at Hubb Property Group.