Buy to let: Top reasons for investing in property
For the last 15 years or so, anyone with a strong credit rating and a bit of cash has been able to “get into” property. You no longer need detailed business plans, income projections or a business background, nor are you confined to using a commercial mortgage.
Equally, buying to let has seemed an increasingly attractive option given the volatility of the stock market and the small returns (due to low interest rates) from other investments.
Some are getting into the market as a way of providing for retirement – others are taking advantage of a booming higher education sector to buy homes to rent out to students.
The number of people renting homes has increased by almost 90% in the last decade as householders struggle to get on the housing ladder, new data has revealed, with Reading, Slough and Oxford among the top 10 rental hotspots outside London.
The Private Rented Sector (PRS), representing under a fifth of the total housing stock, is set to rise to 50% by 2050, making PRS a key player in the British economy.
But what are the real reasons why we are becoming a nation of landlords – and the real benefits of investing in property?
• Cash flow
Some want to be able to give up their day jobs, other are looking for extra funds so they can expand their families, save for their children’s university educations, pay for treats or just benefit from the additional financial security. While the average return on investment for a UK home is, according to ARLA, currently 15.66%, the canny investor with the right strategies can increase this to up to 25%. Higher cash flow properties tend to be cheaper units or multiple flats or rooms conversions, but the trick is to balance these with higher quality properties.
• Capital growth
For those playing the longer game, if you don’t need an immediate cash return, consider going for larger properties in nicer neighbourhoods, which will do better in terms of capital appreciation over time, rather than yielding immediately high monthly returns.
• Beating the alternatives
Add average cash flow return of 15.66% to average yearly capital appreciation of 5.66% and you have an average overall return of over 21%. Other investments, with current interest rates, cannot begin to compete with this. And you can use leveraging to invest more money in the market than you actually have. What other kind of investment lets you borrow money in this way?
• HMO conversions
Maximise your returns by converting a property into smaller units as flats or rooms, so you are creating more units for the same price. Think smart young professionals who want to live with others who are like-minded.
• Family benefits
You can buy properties for your children to live in as students, or to fund their university education and living costs.
• A great time to buy
Traditionally, property always increases in value over time. With interest rates extremely low, and competition among lenders for business stiff, there are some great mortgage deals around. What’s more, there are some bargains to be had through the repossessions currently on the market.
Finally, of course, investing in property gives you access to extra funds as and when you need them. Investing without property isn’t entirely without risk, so think through any potential pitfalls carefully first, and have a varied portfolio, and make sure you change it to meet the demands of a constantly shifting marketplace.