It’s not easy to get your foot on the property ladder these days and this is reflected in the fact that the private rental sector is now at the highest level since the early 90s and quickly closing the gap on the social rental sector.
The last governmental English Housing Survey to be carried out, for the years 2011-2012, found that in that time, around 65% of all households were owner occupied. That means that a large chunk of the market is the rental sector.
In the UK, we have a social housing problem, there are simply not enough to go around and many people have given up on the idea that they will ever reach the top of the waiting list. Add to this the large deposits now required to purchase a home, alongside the struggling economy, and it’s easy to see why the rental sector is booming.
However, that doesn’t necessarily mean that buying a property to rent out is the best investment for you.
Is it a guaranteed investment?
Nothing in life is certain. Saying that, it’s a strong market and one that’s actively thriving. This means that buying a property to let is certainly less of a risk than some other investments.
There are two ways you can profit from the buy to let investment:
- Rental income
- Capital growth
It’s wise to do your research and ensure that you buy a property in an area which has a high demand. The last thing you want is to see the house/flat standing empty for months at a time and making you no return.
It’s also a good idea to consider:
- Average rents in the area, will it cover outgoings
- All outgoings, such as the costs of repair, disputes with tenants, annual safety checks and letting agency fees
-Taxes you will be liable for
Buy to let mortgage
Choosing whether or not to take out a buy to let mortgage is dependent on individual circumstance, but it’s quite common practice these days. Of course, it’s always going to be preferable to fund the purchase yourself, but not always possible or even advisable.
With property investment, the more you borrow, the higher the risk and it’s possible that you may lose more than your original investment. That’s the risk that any investor takes though and it’s really up to what you’re prepared to lose, not to say you definitely will or won’t.
Whilst it’s a nice idea to own property, due to the charm of actually being able to see your investment, it’s never a good idea to go into these things with your eyes shut.
Do you have the time to invest as well as the money? Will you be able to handle the stress if you have problem tenants? Are you prepared to take a hard line to get unpaying tenants out? These are all realistic questions that should be posed alongside the financial ones when considering buy to let.
Research your audience
It’s worth thinking about what kind of tenants you want to live in your property too. Are you in a position to cash in on the student letting market, or would you prefer to provide a long-term home to a family?
Once you’ve settled on this, then it’s necessary to look at why different properties may be more suitable to various audiences. For example, a trendy London flat might make you feel top notch, but it’s unlikely to be what a family of five with a dog is going to want.
Like any business, buying a property to let takes sound planning if it’s going to go well. When researching areas, it might be best to use an agency from the off, as they will know more about various areas and sectors of society.
All in all, buy to let is a good investment right now if you do your homework and use a reputable agency, as well as doing the maths and being realistic. It’s a robust market and house prices are once again on the rise, so it’s still a good time to buy without too much fear of the value plummeting alarmingly.
Consider changing mortgage rates, approach with good business sense and there’s no real reason that it can’t give you a decent revenue stream.
However, also bear in mind that the shrinking gap between social and private housing also means that rents may become cheaper for the private sector, so don’t squeeze those profit margins too tight or you could lose out.
This article is written by Matthew Fine Managing Director of Hunters Marylebone branch.