Buy To Let Property Investment
Buy-to-let property investment is one of the most popular investment choices among both new and experienced investors. This is due to the strong performance of buy-to-let properties in the UK since the early 2010’s. This strategy offers buyers the chance to benefit from growth in both property and rental values, whilst paying out strong yields each month.
Read on to learn more, or use the form opposite to contact our team and discuss your investment objectives.
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Introduction to Buy To Let Property Investment
Investors often buy properties in the UK with the intention of renting them to tenants. This is known as buy to let property investment. The rental income from letting the property to tenants creates a regular, stable source of revenue for the investor.
Investing in buy-to-let property is a popular and relatively safe long-term investment strategy. This is because the property market is resilient and, historically, it has shown consistent growth. Of course, past results cannot guarantee future performance. But, even in times of adversity, the property market has always recovered and exceeded previous levels.
Unlike short-term property strategies, such as the classic “buy low, renovate, sell for profit”, buy-to-let property investment benefits from rental income in addition to natural capital growth. Generally, it is much more hands-off and the buyer only needs to front the money, and then allow a management company to handle the day-to-day. This makes buy-to-let ideal for investors looking for a passive income stream.
Is Buy To Let Property Investment Suitable For Me?
There’s a wide variety of investment strategies for new and experienced buyers to consider – from flipping to joint ventures. We find that, over time, an investor will settle on a single, preferred method that they can repeat and scale. But with the exceptional demand for rental properties from the younger generations in recent years, we’re certainly seeing buy to let becoming one of the most popular methods. However, it’s not for everyone. Consider the questions below to decide if buy to let is suitable for you.Are you looking for a quick return on investment
By its nature, buy to let is a mid-to-long-term strategy. It doesn’t necessarily offer investors an immediate return on investment. Buyers usually put down a significant deposit, with the rest covered by a mortgage. The buyer then profits from whatever is left from the rental income after costs (mortgage payments, insurance, repairs, etc). It can take years to recuperate the costs of the initial investment. Long-term, a sale could net the buyer a handsome profit if the property has increased in value.
So, if you’re looking for a quick return on investment, buy to let probably isn’t for you. You may be more interested in purchasing low-value properties, renovating them, and selling them for a quick profit. This is also a popular investment method but requires much more hands-on work.Do you have the budget for a deposit?
Buy-to-let mortgages are common, with many banks offering such products. However, they usually require a deposit of 25%. If you don’t have the savings for a deposit, you may want to consider other forms of property investment that require less cash upfront, such as REITs or joint ventures.Do you want to be a landlord?
It sounds silly, but you need to seriously consider if being a landlord is for you. You are, ultimately, responsible for property’s upkeep, safety, letting, taxes, and more.
That said, much of the admin and maintenance can be outsourced to an estate agent or property management company, allowing you to sit back and enjoy the income more passively. Of course, using outsourced providers will eat into your profit margin, which is another thing to bear in mind.
Why Invest In Buy To Let Property?
There are multiple reasons why buy to let property is the preferred route to market for many investors, we’ve detailed some of the most common below.Significant Capital Growth
Considering the various investment classes available to investors in the UK, such as residential, commercial, hotels, student accommodation and healthcare, residential buy-to-lets are by far the most appealing. For example, JLL forecasts that Manchester will increase by 17.1% on average in terms of property values from 2020 to 2025. This is simply not seen in other sectors.
This natural increase in property value can deliver huge profits for buyers when they’re ready to sell.Regular Rental Income
If priced correctly, the rental income from a buy-to-let property should cover all costs (mortgage payments, ground rent, etc) and still deliver a profit for the owner.Fully Managed
Property management companies can handle all aspects of managing the property on the buyer’s behalf, such as finding tenants, organising repairs (if needed), collecting rent, and more.Leverage with Finance
It is a common misconception that having no debt is the ideal scenario. Having debt which is calculated and managed sensibly allows people to invest in additional properties they would not otherwise be able to.
By smartly and carefully utilising finance, particularly in combination with low interest rates, investors can potentially buy two properties and benefit from two times the capital growth. As equity builds, investors then have the option to grow their portfolio more aggressively.
Other investment classes are a lot more restrictive in terms of lending, yet residential property still offers plenty of mortgage products at 75% loan-to-value (LTV) for buy-to-let investors, if buying as individuals or through a company.Track Record of Performance
The UK property market is certainly a top tier investment location that attracts significant capital from around the globe. As a developed country with a transparent legal system, strong economy, world-class educational institutions, global employers and limited capacity with an undersupply of housing, the UK has and continues to see property values rise.
This has been the case since records began. According to official HM Land Registry data the average property price in the UK in January 2000 was £84,620, but as of 2022 the average price is £276,755 – showing a consistent, steady rise which provides an ideal investment environment. You can use this tool to search house price statistics.Significant Demand
The UK has had a fundamental undersupply of property for years. Developers cannot build properties fast enough and typically all well-built property sells, mostly in advance of completion during the construction period.
The government has set a target of 300,000 new homes to be built per year, yet in 2019 there were only 161,022 new homes registered according to the National House-Building Council (NHBC), more here.
We will likely see incentives from the government in the future and more relaxed planning constraints to encourage development. It’s not the demand the UK struggles with, it’s the supply – this is the core factor having a positive impact on values.
It’s worth noting that properties in Manchester, Liverpool and London are in particularly high demand from investors at the moment due to attractive rental returns and substantial growth potential over the medium to long term.Various Budgets & Locations
The other benefit of the residential market is the level of variety in your choice. Investing in most cities in the UK will generate a positive return on investment over the long-term, but going into cities with the highest forecast growth makes a huge difference. For those with the budgets then London and Birmingham are great choices. For those with slightly lower budgets, we have the fast-growing Manchester and Liverpool. These are closely followed by great entry-level investment cities such as Leeds and Sheffield. There is plenty to choose from catered to all budgets.
Speak to us about the forecasts and performance of property values and rental returns across the different cities mentioned above, we can provide postcode specific data to enable informed investment decisions.Wide Resale Market
Top performing buy-to-let properties will always attract interest from other investors, in addition to those looking to buy as their own home. This provides buyers with a simple exit plan for the investment.
Where To Purchase Buy-To-Let Property?
We always encourage investors to purchase in the city-centre rather than the outskirts of town. Even if you may save money in the short term, capital growth (i.e. rising property value) typically hits the city-centres first and then ripples out.
This means professionals of all ages simply need to be in or very close to their workplaces, which are typically based in city-centres. When we combine this talent pool with the students who want to stay in the cities after they graduate, it means there is significant demand for modern, convenient residential property in the UK’s city-centres. This makes for ideal rental conditions, perfect for buy-to-let investment.
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Frequently Asked Questions
Below you can find a range of common questions from previous investors. If you require specific details and advice please do not hesitate to contact us today on +44 203 627 3987 or via [email protected].
01. Can I purchase a buy-to-let property with a mortgage?
Yes, you will have to pay a deposit on exchange of contracts and will receive an agreement in principle for your chosen property. When the property gets closer to completion your offer will be formalised.
02. Other types of property offer higher yields, are they better?
There are plenty of income focused investment strategies available. HMO’s, short-term lets, student accommodation and care homes can offer very high yields, for example.
However, the security and capital growth seen in residential buy-to-let property is unmatched, so if you want to see the property value increase aggressively over time it’s the best choice.
Considering your overall return on investment, when comparing like for like, residential buy-to-lets are typically superior.
However, if you are just focused on the income, we can show you how to safely invest in other asset classes to achieve a fixed income of 8-10% net, one example being student accommodation.
03. How much will the Stamp Duty Land Tax be?
This will vary greatly depending on your purchase value and circumstances, take a look at further information here.
04. What’s the best city to invest in?
We spend a great deal of time conducting market research, looking at the latest data and forecasts, and combining this with our experience and knowledge of the market. As such, we are able to form a solid opinion of the best investment locations based on your personal circumstances.
05. Are there payment plans available?
On some schemes, there are payment plans provided throughout the construction period. In most cases, a minimum of a 25-30% deposit will be due at the exchange of contracts stage.
06. Is it better to buy through a Limited Company, can you help?
In most cases when purchasing property for investment it is more tax-efficient to purchase through a limited company. There are various further benefits too.
We can assist with the full set-up and ongoing management of your company and accounts for a low monthly fee – get in touch with the team for further information.
We can look after all aspects of the investment process – sourcing, consultation, due diligence, company formation, mortgage brokers, site visits, construction updates and property management.
What does Nick, our Founder and Director, think of residential buy to lets?
“The residential market is typically the go-to for new investors and it is a fundamental at institutional level. As an investment class it offers the most attractive capital growth prospects and when looking at the track record of the UK property market, it’s clearly a stable medium to long-term hold providing the security that investors look for. This resilience has been evident throughout the ongoing COVID-19 pandemic, especially in comparison to the volatility seen in the stock markets.
We know there is a significant undersupply in the UK property market and demand in city-centre locations is substantial, meaning a quality buy to let will attract young professionals who are willing to pay a premium rental price for convenience in terms of location, quality in terms of a modern finish and the positive lifestyle experience seen in developments with onsite facilities”.
Nick Hyland, Director
Our role is to advise, educate and present the most suitable buy-to-let property investment opportunities. If you would like to discuss your options with the team you can call us on +44(0)203 627 3987, email us on [email protected] or send us a message below.
All information accurate as of May 2022