Whether you are looking into it for the first time or whether you are a seasoned investor it is hard to keep up with all the reforms that are being brought in on the buy-to-let sector. We take a look at some of the top reforms and question: Is it time to diversify your portfolio?
- Energy Efficiency Changes
Energy performance certificates measure how energy-efficient a home is. As of April 2018, rental properties will need to achieve a minimum rating of E. Expected to be rolled out to all existing tenancies by 2020, this reform puts yet further pressure on landlords to maintain their properties and can see costs shoot through the roof. Landlords who do not keep up to the energy efficiency of their properties could see themselves hit with fines up to a staggering £5,000.
However, this problem can be avoided by looking at alternative purchase opportunities. By purchasing a hotel room, you will sublease the room back to the hotels management company. Therefore, responsibilities for maintaining the energy-efficiency of the hotel will fall upon the management company instead of you.
- Landlord Licensing
While it is still at the discretion of individual local councils as to whether landlords are obliged to acquire a permit, we are creeping ever closer to this being a UK wide rollout. Around 300 councils either have some form of scheme or are consulting on the introduction of one, so it is important to check your local council’s website to see if you will be affected. Failure to acquire the permit where necessary could even result in further fines, which have been known to reach heights of £4,000. Yet more red tape to make your way through.
In the respect of landlord licensing, hotel rooms are considered to be a red tape free zone. Due to hotels being classed as commercial property they are officially exempt from the scheme, taking more pressure off you as the purchaser.
- Right to Rent
The right to rent legislation came into force in February 2016. This is the requirement to check whether your tenants have the right to live in the UK. There is no doubt that this is deemed to be a good move, however, it involves more time and work before you can get your tenants into the property and paying rent. In 2016 a total of 106 landlords were charged with breaching the right to rent rules and were fined a total of £30,000.
When it comes to hotel rooms you have nothing to worry about with the right to rent. As you would be subleasing the room back to the hotel’s management company, there is absolutely no need for you to vet numerous applicants before you can start earning an income from your property.
- Yields Dropping on Investment Properties
According to data from Your Move, the average rental yield in England and Wales in October 2017 was 4.4%, falling from 4.8% in 2016. As capital growth also takes a hit in some parts of the country, landlords could see their yields drop even further in 2018.
If you were not convinced before, this could be the turning point! Hotel room purchases offer a much higher yield than those of buy-to-let properties. With purchase opportunities offering an assured 10% yield over a 10 year period you do not have to worry about your profits spiralling down year after year. This is also backed up by the fact the UK tourism enjoyed a record year in 2017, suggesting Brexit has not taken a hold on the travel industry the same way it has crippled the buy-to-let market.
- Stamp Duty Surcharge Remains
More than 18 months on from the controversial introduction of a 3% stamp duty hike for landlords, the tax remains a hot topic in the buy-to-let sector. The charge applies to any buy to let property, or second home, up to the value of £125,000 before it jumps up to 5%.
Hotel room purchases are classed as a commercial purchase so fortunately the same rules do not apply. In the case of hotel rooms there is no stamp duty payable on purchases under £150,000, meaning you do not have to fork out more money than is necessary. Anything from £150,000 up to £250,000 then requires stamp duty to be paid at a value of 2%, which is still considerably cheaper than that of buy-to-let properties. However, for the most accurate information on stamp duty please speak with your tax advisor.
All in all, it is best to analyse your circumstances and choose the option that is right for you. However, now may be to time to take a look at alternative purchase opportunities and take the chance to diversify your portfolio.