Property

Question 1

What are the drawbacks of investing in residential property?

Answer 1

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.

Question 2

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

Answer 2

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

Question 3

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

Answer 3

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.

Question 4

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

Answer 4

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.