Over the past few decades, buy-to-let investors have made a considerable amount as the perfect combination of rising rents, falling interest rates, rising property prices and a favourable tax regime have all worked in favour of property investors.
However, since 2015, the government has introduced a raft of new tax and regulatory changes that have made it harder for buy-to-let investors to earn attractive profits. At the same time, property price growth has started to cool.
These changes have drastically altered the landscape for buy-to-let investors. You can still make money in the industry, but it is no longer as easy as it once was to become an armchair millionaire by renting out property.
How to make a million
It requires a lot more time and effort to make a million from buy-to-let investing today than it did several years ago. Changes to the tax regime mean the best way for buy-to-let investors to own property now is through a company, which comes with its own set of rules and regulations.
This extra administrative burden is not worth it if you only own one or two properties (of course it depends on the size and income from each property) and the interest rates for corporate buy-to-let mortgages are generally higher, so you’ll pay more to borrow as well.
Nevertheless, the fact that you can still deduct these costs, as well as any other company costs from profit, means that any additional expenses will likely be offset by tax saved.
As well as using this trick to reduce your tax liability, if you are willing to shop around, you can also still find properties that offer rental yields in the high single to double-digits.Â
So, if you are willing to do the extra work, then you can still make a lot of money with buy-to-let investing, but only if you have quite a bit of capital to start with and are willing to buy several properties in regions that might be far away from home.
A better route to a millionÂ
To me, all of this seems like a lot of hard work, and instead of buy-to-let investing, I would invest my money in the stock market.
There’s a handful of reasons why I believe this is a better way to make a million than buy-to-let investing. For a start, it is straightforward to build a well-diversified portfolio of companies at the click of a button, and you don’t need tens of thousands of pounds to get started with share investing — you can do so from just £50 a month.
Also, if you invest your money in a tax efficient wrapper such as an ISA, you don’t need to worry about having to pay any additional tax on income or capital gains.
And finally, over the long term, the stock market has generally produced a much higher return than property. Past performance is no guarantee of future returns, but considering all of the headwinds the UK economy is facing right now and the political turbulence, I think a portfolio of international businesses is much more likely to generate attractive returns going forward than property.