Renting Out a Property? The Financial Considerations

Although buy-to-let isn’t quite the “hot property” it was prior to the recent economic recession, there is still much interest in it. Indeed, with ever still property price rises combined with low interest rates on standard savings in the bank, many who have money to invest still see investment in property as the only way to go.

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The foremost calculation in determining the profitability of a rental investment is calculating its rental yield – the amount of money that is received in rent in relation to the amount of money paid for the property. There are however, many considerations that potential and existing landlords fail to undertake which leaves them a much less clearer picture of the exact profitability of such investment. Here are some to consider:

Insurance:

Landlords must ensure that the property is insured correctly. The exact insured required (whether buildings, contents or both) depends on the property and its tenancy terms. This insurance can cost a few hundred pounds.

Legal Compliance:

Some legal requirements for landlords are one-off for each tenancy – such as the Tenancy Deposit Scheme. Some of the deposit schemes are free of charge for protecting the tenant’s security deposit, though many charge the landlord. Other legal requirements are ongoing, and require yearly spends on the part of the landlord, e.g. the annual Gas Safety Certificate. This must be carried out by qualified gas safe engineers and often costs around the £100 mark each time.

Property Repair and Maintenance:

There is a legal obligation under the Landlord and Tenant Act 1985 for landlords to maintain properties to a certain standard. This includes ensuring heating and boiler installations are working properly, as well the washing facilities in the property. Damage done by the tenant is not in the remit though any general repairs to the property are required and the landlord foots the bill.

Agency fees:

For those landlords who choose not to rent out and manage the property themselves, there is also the cost of using a letting agent’s services. They often charge a percentage of your annual rental income to let the property or to also manage the property and tenancy on a long-term basis too – though this is a good option to take if you can’t or don’t want to deal with managing the property yourself.

Do be careful of some agents who can charge large mark ups on contractor costs when it comes to repair or maintenance work. Also, for tenants it is very off-putting being charged re-let fees by an agent at the end of a tenancy period if they choose to continue their tenancy. Be very selective when choosing who to let your property with – research will pay off.

Empty periods:

It is best to try to keep tenants happy as high turnover rates mean properties can be left empty and therefore a loss of rental income for the landlord. Any empty periods will need to be factored into costings.

Taxes due:

Landlords must declare the income they make to HMRC, and like all types of income it is subject to tax. Certain deductions can be made from the annual income received in rent.

 

These were some of the additional financial details that should be considered when investing in property for the rental market.

One very large consideration financially however, which has not been looked at yet, is the long-term consideration – capital growth on the value of the property. We all know the price of property has been going up over the years, and this trend, although slowing, is set to continue for the foreseeable future.

Growth is not the same in every part of the country and varies region to region and area to area, and this growth, long-term, is key to property investment being so in demand. Researching and choosing an area carefully will pay off in the long-run. Castle Estates (South London), have noted, for example, that although an area like Wandsworth now has a lower rental yield of around 5% compared to the 7-8% it was 5 years prior (steeply rising property prices do affect the rental yield calculation), the planned development around the Ram Brewery area of Wandsworth Center which includes improved transport links mean that not only is there likely to be long-term tenant demand, but also continued capital gain on property value for that area.

Research and knowledge will ensure better informed choices, though it cannot be denied that for all the costs, property generally is still a lucrative business for landlords, and will probably continue to be so.

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“Deceptive” PayPal to Pay Over £16 Million Compensation

Prominent online payment system PayPal has agreed to pay compensation to customers worth a total of US$25 million (£16.1 million). The payment processing giant has received these penalties in the US for deception of customers.

PayPal, which has long been owned by eBay but recently became a separate company, agreed to make the compensation payments in order to settle the legal dispute at hand, but has not admitted to being at fault. The agreement must receive the approval of a judge before it is made legally binding.

According to a US government watchdog, the company is guilty of a number of offences including failing to properly handle disputes over bills. Most prominently, PayPal has been condemned for adding new members to a credit scheme, which is functionally similar to a credit card, without informing them that they were being signed up to this service.

The scheme in question is called PayPal Credit. It is a method of deferred payment, allowing people to pay for things within their available credit limit rather than with actual money and then repay over the following months, with interest charged monthly. In other words, it works very much like a credit card. However, it is exclusively available as a funding source for PayPal payments and therefore has no need of a physical card.

The accusation is that the company made signing up for PayPal Credit as well as for the standard payment processing service the default option for newly-joining members, and failed to make it clear that they were doing so.

As a result, according to US Consumer Financial Protection Bureau director Richard Cordray, “Tens of thousands of consumers who were attempting to enrol in a regular PayPal account or make an online purchase were signed up for the credit product without realising it.” Cordray went on to claim that many customers only found out that they had been signed up for Paypal Credit after being charged fees for late repayment or even receiving calls from debt collectors.

While the issue surrounding PayPal Credit has perhaps been the most prominent part of this case, it is certainly not the only accusation levelled at the company. Other wrongful practices of which PayPal has been accused include failing to properly post payments, mishandling customer disputes both with merchants and with the payment processing company itself, and failing to make good on advertised promises to provide credit towards purchases.

A statement from the company said that “PayPal Credit takes consumer protection very seriously,” and that “Our focus is on ease of use, clarity and providing high-quality products that are useful to consumers and are in compliance with applicable laws.”

UK customers, the company insists, have not been affected by the problems taking place in the US.

 

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