With both interest and mortgage rates at record lows, it’s no surprise that people are looking outside of low-paying savings accounts for buy-to-let investment opportunities that will boost their bank balance and provide some long-term financial security.
But even if you can afford the deposit (many specialist buy-to-let mortgages require at least a 20 per cent down-payment), the industry is riddled with minefields. To make sense of the market, we tapped up the experts to get some beginners tips. Notepads at the ready.
When looking for an investment property, it can be easy to be lured in by personal taste, but this is where many come unstuck when looking to rent it out in a crowded market.
Experienced landlord Darren Machin, who owns around 15 properties in the north Midlands, suggests sticking with smaller houses, ideally new builds that will require no maintenance, or old houses that require a full refurbishment but come in below market value.
“Starting from scratch with the interiors, fixtures and fittings mean that maintenance costs are lower and easier to manage and it suits the sort of young professional tenant profile that you want.”
Property moguls Judith and Fergus Wilson made their whopping £200m fortune by using this technique. Before the financial crash, they claimed to be buying a house a day. Their strict investment
philosophy of buying two-bed, new-build housing saw the couple once reach 453rd place on The Sunday Times Rich List. Not bad for retired teachers who wanted to see how far their pension pot could stretch.
Location, Location, Location
Property investment is a science, not an art, so make the most of all the tools available before the DIY begins. Steve Bolton, founder of landlord franchise business Platinum Property Partners, takes a seriously scientific approach when looking for what to invest in.
“By using Office for National Statistics data, I identify areas where there are populations of a minimum of 20,000 working age people and then corroborate it with information about property prices and rents. Places with higher than average rents indicate demand in an area.”
This may mean looking further away than originally considered. Simon Cohen, co-founder of one of the world’s largest buyers’ agents, Cohen Handler, says that investing in the area you live in is a big misconception. “You definitely should not do that. You should invest in an area that has the most capital growth and that’s going to be the safest investment.”
He’s also keen to point out that property investment should not be about stroking your ego. “A lot of people buy something in a posh area to tell their friends, rather than buying a property in a not-so-posh area which would be a smarter investment.”
The Bottom Line
There are three factors that you should always take into account when looking for somewhere to invest in: rental yield, capital gains (how much the value of the property increases) and rental price growth. UK property lending expert LendInvest releases its annual Buy To Let Index to provide a guide on these three factors, giving out impartial advice on where best to invest your hard-earned.
Topping the list in 2017 is Romford, on the outer parts of London, thanks to an abundance of relatively cheap properties, great transport links and its proximity to the capital. Investing here provides the opportunity to yield 5 per cent of your investment each year from rent, the value of the property increasing by almost 17 per cent, and a rental price growth year-on-year of 8 per cent.
To put that into context, languishing at the bottom of the list is Galashiels in Selkirk with yields of around just 3.5 per cent, property values predicted to decrease by almost 10 per cent and a rental price growth of minus 4 per cent. As you can see, it makes sense to do your homework.
Get Rich Slowly
There’s a new wave of property opportunities cropping up in today’s crisis-addled market that don’t require, well, an actual house. Despite promising get-rich-quick results, these likely aren’t going to pay off in the long run.
A few years ago, the trend was for investing in hotel rooms, and now the no-property property investment market has moved on to student accommodation. Investors pay a set amount, usually around £40,000, to a developer who builds a for-purpose ‘student pod’, which they manage. When the rent’s paid each month and your fees have been paid off, you pocket what’s left. It’s the hands-off appeal that has seen those who can’t afford to go all-in with a house opt for this ‘toe on the ladder’ approach.
“On paper, you get a stake in the property market and a good income […] without the bother of having to manage a buy-to-let. However, you may well get ripped off,” says MoneyWeek editor and Financial Times contributor Merryn Somerset Webb. “The funds are mostly based offshore, outside the jurisdiction of the UK regulatory system, and come with shocking layers of fees.”
Add this to the fact that you don’t actually own the land and may have trouble selling it on, and suddenly it doesn’t seem like such a smart investment after all.