Five reasons why buy-to-let is the most lucrative form of investment

Economic optimism is certainly rising in the UK but that's not to say that people aren't still thinking carefully about where their money goes. Investment is a particularly hot topic at the moment, and with the property rental market currently soaring, many people are counting on buy-to-let as a way to boost income and provide long-term financial security.

In fact, a recent study showed that buy-to-let has actually outperformed all other mainstream investment options for almost two decades, with some people seeing returns as high as 16 per cent. So why exactly is it proving so popular?

1. The rental market is booming

With property prices now higher than ever before, the average age at which someone will make their first step on the property ladder has risen significantly. In the North West, it now stands 35 years old, and the situation is the same in the North East and the East Midlands. In London, it's a rather shocking 52.
 
For most young people then, privately rented accommodation is the only feasible option to consider. As long as it remains difficult to get a foot on the ladder, the rental market will grow and yields will remain high.

2. Buy-to-let mortgages will help you

The vast majority of people will have to rely on a mortgage when purchasing property - buying outright is an extremely rare thing in today's market. For those who are buying with the sole intention of renting out, though, there are special mortgages available which can make the investment even more worthwhile.

The main difference between conventional and buy-to-let mortgages is that the latter tend to take the forecasted rental income into account, instead of just your standard earnings. Also, the higher your initial deposit is, the better your rate is likely to be.

3. Conventional investments are no longer cutting it

The benefits of buy-to-let are so obvious that, for many, it's become a genuine alternative to the conventional pension. Traditionally, upon reaching the appropriate age, a retiree would be required to purchase an annuity with the savings they'd collected throughout their working life. This package would then pay a certain amount each month, depending on the rate.

In the recent budget announcement, however, new legislation was introduced allowing retirees to use their pension savings however they wish. So, with longer life expectancies causing annuity rates to move in the opposite direction to property prices, buy-to-let has become the most lucrative alternative.

4. Selling will always be an option

While the very nature of buy-to-let is likely to mean that you'll be keeping hold of the property for the foreseeable future, you will always have the option of selling - and this provides some invaluable peace of mind. While this can be particularly handy if you run into financial trouble further down the line, it may also be worth considering if the opportunity arises to make a decent lump profit from rising values.

In this situation, you're gaining on the lender's money as much as your own. If, for example, your property cost £200,000 - 20 per cent of which is your deposit - and its value increases by ten per cent, your gain is £20,000, or half of the initial outlay. While there are still legal costs and other fees to consider, the benefits are still significant.

5. The taxman is (almost) on your side

Most investments will require you to pay tax, and buy-to-let isn't exactly an exception. The money you do make from the property - whether from rental income or the profit of a sale - will be subject to capital gains or unearned income tax, but there are steps you can take to ensure your contributions are minimal.

All of your spending, including the initial investment, furniture costs, maintenance expenses and agent fees, can be offset against the tax you pay, further boosting your returns. The extent to which you capitalise on this opportunity will depend on how thoroughly you plan the move - be sure to speak with a financial expert before investing to see what you're options are.

While many investment options have shown their weaknesses since the recession, buy-to-let has risen from the debris with some real promise. It may not last forever but while the going is so good, it makes perfect sense to capitalise. As with any other financial venture of this size, professional advice is always recommended - with the right planning and care, though, the rewards are very much there for you to reap.