Whether you’re new to property investing or something of a seasoned pro, there will likely be a time when you are asking the question “should you buy to let or buy to sell?”
It’s a common question, and ultimately there is no right or wrong answer as it depends on a number of factors, not least your own situation and attitude to risk.
However, there are a number of things you should keep in mind to help you decide whether to buy to let or buy to sell a property:
Rental Value Vs Sale Price
The most obvious factor to look at is how much rental income you can expect from the property versus how much it would sell for on the open market. For this, you’ll need to know how to calculate buy to let yield.
If the property is likely to give you a high yield on the rental market, it may be worth hanging on to, especially if the sales market is depressed.
On the other hand, if the yield is relatively low but the sales market is thriving, it may make more sense to sell the property and move on to your next project.
A good estate agent will be able to advise the expected rental income and sale price you can expect to help shape your decision.
Renting out a property can affect your tax situation differently to selling an investment property.
In most cases, you can expect to be paying income tax when letting a property out, and capital gains tax when you sell the property.
Taxation rules for landlords and property developers are quite complex and ever-changing.
That’s why, after considering whether to invest in buy to lets or REITs (Real Estate Investment Trusts), many people decide to keep things simple and put their money in trusts.
With that in mind, we advise consulting with a qualified property accountant to understand your potential tax liabilities in different scenarios.
The Local Area
Some areas are suited more for rental properties than for selling properties, and vice-versa.
For example, properties within, or close to, a city centre tend to be easier to rent out than sell. On the other hand, rural properties tend to be easier to sell rather than let.
Therefore, the location may have a big impact on whether it’s better to buy to let or buy to sell. Again, a good estate agent should be able to help advise on whether the rental or sales market is stronger in your chosen area.
The Type Of Property
Just as the area affects whether properties are easier to let or sell, the type of property also has an impact.
For example, small flats and apartments tend to appeal more to renters, whereas large detached houses tend to appeal more to buyers.
House Price Predictions
How much house prices are likely to change in the future will also affect whether you should buy to let or buy to sell.
If you expect house prices to rise, then it may be worth renting out the property and only selling once prices have risen significantly. Alternatively, if you expect house prices to fall, it may be worth getting the property on the market now to avoid going into negative equity.
For this reason, it’s worth reading up on published research and predictions to help get a grasp on how the market is developing.
Ongoing Costs & Opportunities
It’s worth looking long-term when trying to work out whether you should buy to let or buy to sell.
If you choose to rent out your property, you’ll be liable for several ongoing costs (such as council tax, insurance, etc), regardless of whether your property is occupied or not.
You’ll also be missing out on the lump sum you may receive if you sold that could potentially be used to fund your next property investment purchase.
However, if you sell now, you’ll be missing out on a regular income that a rented property brings and the cash flow benefits that can provide. You also do not stand to gain from any future house price increases.
So, Should You Buy To Let Or Buy To Sell?
Your own personal circumstances will dictate whether it’s better to buy to let or buy to sell, as well as the specifics of the property itself. However, as you can see, there are a number of factors you can use to help guide your decision.
If you are not sure on the best course of action to take, you should seek the advice of experts such as your estate agent.