3 reasons why buy-to-let properties are a great investment
October 11, 2018
When it comes to investing, you want to put your hard-earned money into something that is going to offer you maximum reward with minimum risk. Unfortunately, there’s no such thing as a perfect investment. Every investment you make will have an element of uncertainty, which is why it’s all the more important that you give it careful consideration and take the time to study your options.
Where you decide to invest your money will be influenced by various factors, including the amount of money you have to invest, the risks you are willing to take and the return you expect to make. There are a variety of assets available to the average person looking to invest, but each come with their own risks and considerations. Stocks and shares are volatile, ISAs and savings accounts are unrewarding at present, and flipping properties is costly and time-consuming...to name a few of a your options!
Whilst not immune from risk, opting to invest in the buy-to-let market is an increasingly well-trodden path for many astute investors looking for the best return on their investment. In this post, we explore the three major reasons why putting your money into buy-to-let properties could be the best investment decision you ever make.
Expected long-term growth in housing value
The UK property market has seen steady growth since the financial crisis of 2008. Whilst the rate of increase has slowed in recent years, it is expected to continue for the foreseeable future. After substantial increases over the past five years, city house prices are now levelling out according to ONS House Price Index. Elsewhere, in UK areas such as Nottingham, Leicester and Liverpool, house prices are still experiencing yearly increases of 6-7 per cent, according to an August 2018 City Index conducted by Hometrack.
On the whole, average UK house prices are experiencing gradual stabilisation after almost a decade of rapid growth. The UK Office of Budget Responsibility forecasts that house price growth will slow from 2.9 per cent in Q4 of 2018 to 2.2 per cent in Q1 of 2020. Perhaps more interesting though, is their prediction of a steady rise in UK house prices to 3.1 per cent by Q4 of 2022 – and that’s with the uncertainty of Brexit looming! All very reassuring for those thinking about entering the buy-to-let market.
Huge demand from renters
A 2017 study conducted by global real estate consultants Knight Frank predicts that nearly one in four households will be in the Private Rented Sector by 2021. This means that an extra 5.9 million homes will be needed to meet the demand. Even with the government’s ambitious 2017 Budget plans to build 300,000 homers per year one in four households will be in the Private Rented Sector by 2021. This means that an extra 5.9 million homes will be needed to meet the demand. Even with the government’s ambitious 2017 Budget plans to build 300,000 homers per year, it looks like there is going to be a huge shortfall in the supply of residential rental properties over the coming years.
As the demand for homes in the UK increases, it looks like the private rented sector is going to best placed to meet it. Both the build-to-let industry and government-funded social housing programmes are proving incredibly slow as solutions to the housing dilemma. Investing in a buy-to-let property is not only a sound financial investment; it offers a home to an increasing number of families. The majority of these prospective tenants are currently not in a financial position to own a property whilst others are those whose lifestyle is more accustomed to renting, such as those highly mobile millennials.
Regular rental income
This is without doubt the main reason that most people become landlords. Assuming that your tenants pay all of their rent on time, you will receive a monthly sum that will cover your mortgage repayments, maintenance costs and, if you are lucky, some leftover cash. (Bear in mind that there are a number of different strategies you can take with this, whether you want to chase rental yield, capital appreciation, or interest-only or repayment mortgages that increase equity, but we’ll discuss these in a separate post.)
At the same time as you receive rent, your property will ideally be increasing in value and – as discussed in our first reason – prospects are looking good, wherever you are looking to invest in the UK. When you do eventually come to sell your property, there is a great chance that you will make a handsome profit from your capital gain. Bear in mind that there are a number of different strategies you can take with this, whether you want to chase rental yield, capital appreciation, or interest-only or repayment mortgages that increase equity, but we’ll discuss these in a separate post.
Whilst the market is currently looking favourable for buy-to-let investment, it is important to manage your expectations regarding profit and have a pragmatic approach to the realities of being a landlord. You should not expect to have a year-round regular income from your rental property. Problems with rent payment, maintenance issues, government policy changes and a myriad of other obstacles may come your way.
Even if your property is in a popular area, you may still experience transition periods when you’re in-between tenants. During this time you will still need to pay all of your monthly costs whilst your property is vacant and you are receiving no income. We estimate that this situation alone costs the economy over £500 million per year! A great way to avoid this unhappy predicament is to invest in residential properties with tenants already in place. There is no transition period, no rental loss and you have the added benefit of knowing your tenants rental history. What’s not to like?
At Vesta, we believe that buying and selling properties with tenants in situ is the best way to minimise your costs, eliminate rental loss and reduce stress for tenants. For more information on how you can enter the buy-to-let market, check out our current property listings and jump into property investment market today!
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