Buy-to-let investments have long been seen as a reliable path to passive wealth, and it is no wonder they are drawing in more investors each year.
As a financial adviser, I have recently noticed a marked increase in clients looking to get on the BTL ladder.
My typical client is a busy professional, often with young children. The client spends long hours working, and adding in streams of revenue is not an option.
For them, the priority shifts to generating passive income that can put them at ease and allow more time to spend with the family. BTL appears to be the most robust, secure and high-return solution in this context.
But here is the reality: BTL investments are rarely as passive as they seem.
In many cases, managing rental properties can develop into a more active business than your day job. That is why it is crucial to go in with eyes wide open.
Glitter and the grit
The UK property market has been robust over the past decade, with average house prices increasing by 70 per cent from 2013 to 2023, according to Statista.
This growth makes the property look like a surefire bet. But general numbers can be misleading.
If you look more closely, there are many cases in which property values stagnate and sometimes even fall.
Location, building conditions and market competition all have a role to play in this.
Just recently, I had a conversation with a client who was frustrated that their BTL property had not gone up in value over the past 10 years.
Instead, they have had to deal with mounting repair bills – roof leaks, insect infestations – and unforeseen costs that can quickly erode your returns and eat into any savings.
Unlike stocks, there is no instant sell-out option as it is an illiquid asset, and in case of damage you would need to work to restore your property.
As Matthew Lay, my colleague and a mortgage and protection specialist at Compound Wealth Planning, puts it: "BTL can be a profitable investment, but prior research and due diligence is a must. How does the investment look after considering tax, insurance, time commitments and potential void periods?"
The reality is that landlords face myriad unexpected expenses.
According to Checkatrade, landlords should budget to spend at least 1 per cent of the property's value for repairs each year.
Therefore, if you have a property worth £250,000, that is £2,500.
Recent regulatory changes have also made things trickier, with stricter energy efficiency standards and reduced tax relief on mortgage interest.
The real stickler is that, often, you do not know the effect regulation changes will have over your ownership.
Hamptons reported that in 2023, 10 to 20 per cent of landlords forced to remortgage were losing money on their investments.
To add to this is another overlooked cost, or what I call the "return on hassle."
