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27th February 2018

Don’t Get Off – Why Buy-To-Let Is Still Your Best Future Investment

There is no denying that the buy-to-let market has come under the cosh recently following a raft of reforms introduced by former chancellor George Osborne.

The introduction of an additional 3 per cent stamp duty charge for landlords, tougher lending rules and tax law changes have certainly made it a testing time however, property is still a very attractive investment at a time of low interest rates and volatile stock markets.

Greater demand from tenants, rents that should rise with inflation and the long horizon for interest rate rises, mean many investors are still tempted by buy-to-let.

A Simply Business poll earlier this year found that 63 per cent of buy-to-let landlords would recommend following in their footsteps.

Property, unlike stocks and shares, can be bought with a deposit, so buy-to-let investors can “gear” their investment.

If prices rise, this means, for example, three properties worth £100,000 each can be bought with a cash investment of £100,000 as opposed to just investing the £100,000.

This allows a benefit from growth of assets worth £300,000, meaning just a 10 per cent increase in property prices could potentially deliver an exceptional return compared with increases in financial markets on a cash investment of £100,000.

It is also possible to buy properties at a “true” discount. For example, a seller who needs to move on due to changes in their personal circumstances may be willing to sell for tens of thousands of pounds less, or if a property can’t be bought with a generic mortgage but cash only – if it has subsidence or a sitting tenant for example – again it may be possible to purchase the property for less than it’s worth, sort out the problem and instantly see a gain in value more than a standard financial investment could offer.

There is a consensus that the private rented sector will grow, in whatever form, very significantly. A recent survey from Knight Frank suggests that as many as one in four Brits will be renting by 2021. Therefore, if you think strategically, buy-to-let represents a major investment opportunity.

Ultimately, the property you buy and where, is likely to come down to what is financially viable. As a buy-to-let investor, you will either be relying on capital growth (medium to long-term increase in the value of the property) or solid rental returns (income generated from the property expressed as a percentage of the property value). You’ll need to work out which of these has the bigger advantage.

For example, if your initial costs are so big you are unlikely to attain a high rental yield, you will be depending on property prices rising. If, on the other hand, you are buying a cheaper property to rent out to several students, you will be relying more on the rental yield.

A good rental yield is generally benchmarked at around 5% a year. Some properties might reap yields as high as 7%, while HMOs can achieve between 12% and 15%.

We have found that the demand for rental properties has never been higher. In most cases people are actually deciding to rent a property rather than buy by choice. They are not renting because they have been forced into that position, quite the opposite, they are electing to rent as they can see many benefits from being tenants rather than homeowners.

Young professionals like the flexibility that renting a property gives them. If they want to move City’s for employment reasons, they can do so easily if they are renting. There is no stamp duty to pay when you become a tenant and the feedback I receive from lots of clients if that they like the fact it is not the responsibility of the landlord to maintain the property and not theirs.

The 20 somethings are very much an aspirational generation and they don’t like to wait for anything. If they see a penthouse flat up for rent, they are able to move quickly and secure the property without having to save for at least a year first.

If you are thinking of becoming a landlord and investing in a property it can be hard to know where to begin once you have purchased a property. This is why we would always recommend employing the services of a letting agent. An agent will help to guide you through the process of renting your property and set up a successful tenancy.

At Redbrik we offer a range of services to landlords including introduction only, rent collection and a fully managed service. Engaging in a full managed service will ensure that the agent deals with all the marketing of your property, viewings, references and the legal documents to ensure you are guided through the process every step of the way. Within our fully managed service we also deal with any maintenance queries, carry out all property visits throughout the tenancy and deal with the renewal of your tenancy.