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Flashcards in Property Deck (4)
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1
Q

What are the drawbacks of investing in residential property?

A
  1. It is very illiquid.
  2. It needs to be managed (tenants, repairs, rent collection etc).
  3. Not guaranteed there will always be tenants.
  4. An extra 3% stamp duty applies to second properties.
  5. Capital Gains are subject to an 8% loading in tax.
  6. Only 25% of Mortgage interest is offset against rent & only basic rate tax relief is now available on rental income.
2
Q

What key considerations should be made when considering purchase of a BTL property?

A
  1. Location location location!
  2. Condition of the property.
  3. Type of property & its appeal to tenants.
3
Q

What are the main advantages of investing in indirect property investments as opposed to direct investments?

A
  1. No need for hands on management which would be time consuming.
  2. Fewer administrative burdens on the investor.
  3. Ability to access expert fund management.
  4. Significantly more liquid - can’t be easily sold & partially sold.
  5. Can be accessed with smaller investment pots & for regular, small investments.
4
Q

What are the potential downside risks for property in a recession?

A
  1. Markets become volatile.
  2. There are more business failures & individual defaults, increasing the risk of time without a tenant.
  3. No tenants = Cashflow problems & trouble servicing debts.
  4. It may be necessary to reduce rents to attract new tenants.