Two of the most common approaches for property investment are Buy To Let and Buy (and perhaps refurbish) To Sell.

James Mole, director of property funding and insurance firm JS Advisory, considers their pros and cons.

Buy To Let: This method of investment is great for those who are looking to generate a regular income stream from their property investment. However, there are many factors that should be considered when it comes to opting for buy-to-let property investment. 

What are the main benefits ? 

• Regular rental income – this type of cash flow makes it a predictable investment as landlords know to expect a set amount of income per month.

• Capital appreciation – as buy-to-let is a long-term investment strategy, this means that the value of the property can increase over time, meaning that a landlord can make significant capital gains if they decide to sell the property at the right time, taking advantage of wider market conditions and demand. 

• Tax benefits – a significant benefit to landlords of setting up a limited company for property investment is that restrictions on buy-to-let mortgage tax relief do not apply to limited companies. This means that landlords would be taxed 19% on these profits through a limited company, rather than 40-45% in income tax if they were registered as individual purchasers.

• Higher rental returns from short-term lets – typically, buy-to-let properties that are used for short-term rentals will deliver higher yields. This includes renting a property as a holiday rental or Airbnb. This is something that landlords can take advantage of to deliver higher revenue streams. 

• Lower risk – buy-to-let properties are seen as a lower risk investment, due to the fact that it is easier to predict the market and to guarantee a more predictable level of return on investment. 

What are the disadvantages?

• Managing properties – managing rental properties as a landlord can become time-consuming, particularly if you own a portfolio of different homes. Fortunately, landlords can hire a property management company or letting agent to carry out the management of the property and tenants, but should be mindful that this will accrue additional costs.

•  Paying for damage or repairs to the property – tenants may cause damage to the property over time, and security deposits will not always fully cover these costs. Investors must consider that they may need to pay for damages out of their own pockets. 

• Covering the costs of vacant properties – prospective landlords must consider that there may be times between rental tenants where the properties lie vacant. With no rental income, the landlord would be required to cover the costs during the vacancy period, such as the mortgage and the council tax, electricity bills, etc. 

• Fluctuating market – wider economic conditions can lead to fluctuations in the market and the level of demand for rental properties, as well as the price. 

• Stamp duty surcharge – landlords are required to pay a stamp duty surcharge of 3%.

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Buy To Sell: It is often described using the term ‘property flipping’, which sees investors purchasing a property to renovate, and ultimately to increase its value before reselling in a relatively short period. 

What are the main benefits? 

• Potential for high capital gains – depending on a number of factors, such as the timing, the market, and the quality of improvements made to the property, this method can significantly increase the value of a property, meaning more potential for higher profits to be made.

• Profits can be made quickly – providing a sale goes through relatively quickly, profits from the type of investment are obtained quickly, and are much less of a long-term investment than buy-to-let properties. 

• Investors can take advantage of a strong market – due to the short time frame that property flipping usually takes place, investors can move fast to take advantage of the prime market and economic conditions. 

• More flexibility with financing options – buy-to-sell mortgages will usually offer more flexible and wider options for investors in comparison to buy-to-let mortgages. 

• No managing of rental tenants – a key benefit is that the property will be resold rather than having to deal with the management of rental tenants and becoming a landlord. 

What are the disadvantages?

• Higher risk factors – buy-to-let investment is seen as much higher risk. Many factors can impact the return and investment, and can even lead to losses being made. Factors that can impact the risk include longer than planned renovation timescales, higher renovation costs, economic and wider market fluctuations, or a property taking longer to sell than originally forecasted. 

• Time investment – whereas buy-to-let can be more of a passive income, buy-to-sell properties require a lot of time invested into managing the project, as well as the sales process. 

• Capital gains tax – for property sales, capital gains tax will be charged at 18% for basic tax rate payers, and 28% for higher tax rate payers. Investors should carefully assess how much tax they will be required to pay after successfully flipping a property.