What are the downsides of multiple buy-to-let?

Apart from the tax implications, there may be other reasons not to get into buy-to-let. Phil Morris, head of distribution at Gale and Phillipson, reckons: “Margins are thinning and the pros of investing in property are on the wane.”

Comments made earlier in the year by Ian Gorham, chief executive of Hargreaves Lansdown, were even more scathing of multiple buy-to-let. He told FTAdviser that it was “expensive and inconvenient” and did not compare favourably with investing in funds.

Costs

Paul Clampin, chief lending officer for Landbay, said the new tax rules may make “potential new landlords consider more carefully the underlying changing costs of making and running a buy-to-let investment”.

Indeed, it can be costly. Mr Gorham suggested that while £100,000 worth of shares might cost approximately £300 a year to manage, the cost of maintaining just one property could cost £3,000.

While such figures are difficult to verify, given the breadth and diversity of the residential market, potential investors do need to calculate all the potential outlay.

Mr Morris noted: “Managing properties has costs attached, whether in their own time or through employing others to deal with issues in your stead. Solicitors are needed for purchase and sale. Building surveyors are a wise investment but the list of costs goes on.”

The point is simple enough: if your property is empty, with no tenant, you will receive no rent and therefore no income Phil Morris

Risk attitude

While Mr Gorham would recommend the diversification of stocks across a portfolio, for many multiple buy-to-let investors, diversification is not an option - all their money is tied up in property.

Should the worst happen to the property market, it is harder for investors to liquidate their holdings and make a profit.

Furthermore, investors who have five very similar types of property, rather than a spread, could be at risk of not having enough diversification in the property market.

John Phillips, group operations director of Spicerhaart and Just Mortgages, said: “The best way to hold a property portfolio is to have a spread across locations, such as one- and two-bed flats, converted and purpose-built, and two or three-bed properties close to train and tube stations, for example.”

Tenants

There is also the issue of tenants - not all of them are desirable and could leave you out of pocket if you have to enforce an eviction. Although demand currently is high for rental properties, there is no guarantee this will be the case in the future.

Mr Morris added: “The point is simple enough: if your property is empty, with no tenant, you will receive no rent and therefore no income. This is especially important if you have a mortgage, as even if you have no tenant, the lender will expect to be paid.”

Repairs

With the government’s changes to the wear and tear allowance, landlords with multiple properties could face higher bills on their hands in the future.

Interest rates

While interest rates have stuck around the 0.5 per cent mark since 2009, the prospect of higher interest rates in the near future is very real. Given that rates rose to 16 per cent in the early 1990s, the risk of base rate hikes should also be factored into the multiple buy to let equation.

Moreover, according to data from Nationwide, UK house prices fell by 7 per cent in 2008 and by a further 7 per cent in 2008. The full recovery did not happen until half way through 2014, all of which would reduce the equity in the property and therefore the potential profit.

That said, not all investment advisers agree with Mr Gorham. Darius McDermott, managing director of London-based Chelsea Financial Services, does not do buy-to-let because he already has a “decent sized mortgage” on his primary residence and wants investment diversification.

However, he added: “A lot of investors have made a lot of money out of buy-to-let and as long as the property boom continues; that is okay.”