CategoriesInvestor Advice

How to Invest £50,000 in Property

With an abundance of information online, it is hugely challenging for new investors to know where to begin.

This article will take you through how to get your first step into the world of property investment and exactly how to invest your £50,000 lump sum.

Why £50,000?

Considering an extensive data set, £50,000 appears to be the average amount an investor has upon beginning their property journey.

£50,000 is a large enough sum to allow a new landlord to start a lucrative investment journey.

Although individuals can certainly break into the property market with less, this balance will afford the luxury of a property with a high rental yield and strong capital growth.

Why Property?

Investors must consider other investment options before delving into the world of property.

For example, a lump sum of £50,000 could be placed into stocks or cryptocurrency. However, there are many reasons why we believe property reigns supreme over these alternatives.

Firstly, the property can be leveraged using a mortgage. Meaning, to purchase a £100,000 investment property, an individual would only actually need £25,000. The remaining balance comes from a mortgage loan.

Whilst mortgages undoubtedly attract their own distinct risks, they allow for much more substantial investments, which would not be possible in other sectors.

Secondly, property is reliable. Like any asset, there are fluctuations when the data is considered on a granular scale. However, statistics show a gradual, consistent upward trend. Land is finite, so as space becomes more limited, the price progressively increases.

Additionally, there is comprehensive, robust data and analytics surrounding property. The information is transparent and accessible, meaning every investor can make accurate and well-researched predictions about their investment potential.

Thirdly, property provides multiple opportunities, making it a diverse option for the fluctuating UK economy. The most common choice is the buy-to-let mortgage, where an investor will purchase a home to let to tenants, providing a regular monthly income.

Alternatively, an investor may choose to sell the home, generating a lump sum payment. There are many other options for property, including investing in commercial property or short-term holiday lets.

Choose Off-Plan Property

A city centre, off-plan property is the best place for any investor to begin.

An off-plan home is one that is purchased before it is built. Developers are willing to offer discounted rates for these purchases, as they offer an immense amount of security.

Aside from a reduced cost, opting for an off-plan home gives the investor an element of choice. Dealing with the developer at this early stage will allow investors to choose the most lucrative apartment. This might be because it is south facing, has a particularly large balcony, or comes complete with a parking space.

These added features allow landlords to charge a premium with regards to both rent and resale cost.

The Perfect Location

With a limited pot of money, choosing the right location is essential.

Liverpool or Manchester would provide the ideal option, allowing an investor to purchase a home of around £150,000 comfortably. This figure will afford any landlord a centrally located apartment with tremendous rental potential.

Choosing a city undergoing regeneration is crucial, as it shows the area is on an upwards trajectory. Therefore, the resale value will continue to increase, along with the demand for high-quality rental properties.

Capital Growth V Rental Yield

Rental yield refers to the profit made from a rental property over a year. It is presented in a percentage format, and carefully balances the value paid for the home against the yearly sum it generates. Many investors aim for a yield between 5% – 8%. Notably, rental yields are substantially lower in London, due to the astronomical cost of housing.

Conversely, capital growth refers to the increase in property value through the period of ownership. Investors will closely follow these trends to allow them to understand whether it is an appropriate time to sell.

Earlier in this article, the cities of Manchester and Liverpool were recommended. Investors could choose a cheaper city such as Bradford or Hull, where they may even be able to secure two properties with an initial investment of £50,000.

It may even be the case that the yields are higher in these cities due to the lower cost of housing. However, capital growth will be limited, and therefore growing equity in the homes will be extremely slow.

Building equity allows investors to withdraw money from the home, purchase more property, and diversify their assets. So, investing in properties and areas with strong capital growth is the only way to build a strong portfolio.

A Worked Example

It is essential to consider how the £50,000 investment will realistically look.

Track Capital can confidently secure a discount of more than 10% on off-plan properties purchased directly from an investor. For the purposes of this explanation, a conservative estimate of a 10% discount will be used.

Consider a city centre apartment valued at £150,000, which is more than reasonable for a city such as Manchester or Liverpool. Track Capital would be able to secure this home for £135,000.

A 30% deposit for the home (again, conservative), amounts to £40,500. This leaves you with £9,500 to cover legal costs, stamp duty and any decoration or furniture package you would like to include in the property.

Next, it is essential to look at the capital growth of the home. Consider that it takes 1 year from the home’s purchase to completion, then you rent the property out to tenants for another 2 years.

Savills have predicted a 27.3% capital growth in Liverpool for the next five years. Again, using a more moderate estimate, we will consider the annual increase to be 4%. Meaning, over the 3 years, the home will increase 12% in value.

Therefore, the property is now worth £168,000.

So, the home you purchased for £135,000 is now worth £168,000, meaning you now have £33,000 worth of equity in the property.

Additionally, two years of rental income will be generated in passive income during this period.

Building a Robust Portfolio

Most landlords choose a buy-to-let property to begin their investment journey. The steady monthly rental provides them with an additional income, whilst the property appreciates in value in the background.

Once they have gained enough equity in the home, they can then withdraw and inject it into a new property, growing their portfolio with relatively little work.

Considering the above example, the £33,000 equity could be withdrawn and used for a deposit on a smaller home. We work closely with investors to ensure they choose a second investment home that complements their first, cleverly diversifying their portfolio.

Reasons to Work With An Investment Company

Firstly, investment companies have access to properties that the general public does not.

Most off-plan homes are not marketed through websites such as Rightmove or Zoopla. Instead, developers choose to advertise the homes to investment companies only, who they can rely on to provide high quality, reliable landlords. Investment companies work hard to cultivate these relationships, with each party providing a service the other requires.

Therefore, by working with an investment company, you will access the latest off-plan homes that you would not otherwise have even been aware of.

Secondly, investment companies have strong negotiation power. Due to the stream of regular buyers they introduce, developers are often willing to provide the homes at heavily discounted prices. Without the backing of an investment company, individuals will struggle to achieve the same discounts.

As well as these heavily discounted prices, investment companies can negotiate bonuses such as a stamp duty contributions and furniture packages.

Finally, the expertise in both property and locations are priceless. Especially for investors who do not live in the same city or country, working with a dedicated team will ensure you invest your capital wisely.

£50,000 Investment Recap

  • £50,000 is a great starting point for investors, allowing them to purchase a centrally located apartment attractive to renters.
  • An off-plan property in a city undergoing regeneration is the wisest investment.
  • Although rental yield is significant, capital growth will allow for the fastest portfolio growth.

Working with a property investment company will allow for discounted rates and access to properties not advertised online.

For more advice, contact Track Capital at [email protected].

CategoriesInvestor Advice

Manchester: A Property Market Forecast For 2021/2022

Manchester: A Property Market Forecast For 2021/2022

Manchester was recently named the best city in the UK to be a landlord by Go Compare, sparking worldwide interest.

With an average rental yield of 5.55% and property prices well below the national average, it is no surprise that this city continues to cement itself as an investors favourite.

Manchester is an integral element of the Northern Powerhouse. The entirety of the North West region sees continual growth every year, with businesses flocking to the area. In March 2021, rent prices in the region were reported to be 6.8% higher than 12 months prior.

Savills have predicted that rent prices will grow 17% by 2025 in Manchester, showing the lucrative returns available in the booming city.

Pulls to Manchester

The Greater Manchester region is popular for several reasons. Incredibly, between 2006 and 2016, the population grew by 7.7%, which was twice as much as the rest of the UK.

Manchester is a hugely diverse city, with over 200 different languages spoken. 40% of adults in the region can speak at least two languages, meaning individuals from all over the globe feel immediately at home. Following the uncertainty of Brexit, Manchester continues to draw foreigners from the continent and beyond.

Manchester is a forward-thinking city with an impressive arts scene and bustling nightlife. Interestingly, the region has pledged to be carbon neutral by 2038.

There are over 200 lettings and management agencies across Manchester, highlighting the astronomical size of the rental market in the city.

A Huge Regeneration Project

The Northern Powerhouse is a term that is unavoidable when discussing investment in the UK.

The idea was introduced in 2014 by the Chancellor of the Exchequer, George Osborne. Created with a promise to build excellent links between the booming northern cities and increase spending, drawing businesses away from London.

For too long, northern cities felt left behind the soaring economy in London. However, Manchester is now clearly leading the way in this gigantic venture.

There are countless regeneration projects currently ongoing in Manchester. Two of the most prominent are Manchester Waters and NOMA.

Manchester Waters covers a whopping 26 acres and is a decade long project to provide 2,500 new homes. This area will not only look fantastic but will be sure to lure residents from far and wide, situated just a 10-minute walk from Manchester United’s Old Trafford football ground.

NOMA is another large project, which will proudly boast over one million square foot of new homes. Ideally located directly opposite Victoria train station, the development will also house 200,000 square feet of hotel space for the thriving tourism market. Additionally, the area will be home to 2.5 million square feet of office space, perfect for the flourishing corporate scene.

Fluctuations Across the City

According to Zoopla, the average price paid for a home in Manchester in the last 12 months was £219,610. When looking only at detached properties, the price rises to £335,522. Conversely, for flats, the rate falls to £165,953.

Greater Manchester is home to 2.8 million people. Naturally, there are considerable fluctuations in property valuations across the region. For example, Bolton sits at the lower end of the spectrum, with homes selling for £152,000 on average. Conversely, in the city centre, the average asking price is substantially higher at £260,909.

Three of the most popular areas in the city for investors are the city centre itself, Salford, and Fallowfield, popular with students.

Considering the rental figures, 2020 reports show the average rent for a 1-bed property in the city centre sits at £758 per month, and for a 3-bed property, this rises to £1368. Rightmove and Zoopla reports show that Manchester was the most searched city outside of London in the same year. This trajectory is showing no sign of slowing.

Stamp Duty Holiday

2020 brought the most turbulent year many will see in a lifetime. Remarkably, throughout this chaos, UK house prices grew by an average of 7.3%. This is staggering, considering the economy contracted by -10%. This tremendous growth is primarily attributed to the stamp duty holiday.

Stamp duty is a tax paid on most property purchased in England and Northern Ireland. Homes over the value of £125,000 attract the charge, which is payable on a sliding scale. Stamp duty can range anywhere between 2% – 12% of the homes value, depending on the price of the property.

However, as a response to the economic downturn of the coronavirus pandemic, the government introduced the stamp duty holiday. This has encouraged the purchase of property across the country, a necessary adjustment under these extraordinary circumstances.

The stamp duty holiday raises the threshold of properties that attract the tax to £500,000 and was initially in place until 31st March 2021. Due to huge demand, the holiday has been extended until 30th June 2021. This means, if your property completes before 30th June, and costs less than £500,000, no stamp duty tax will be payable.

From 30th June, the threshold will be reduced to £250,000. This ruling will stay in place until the end of September, when standard regulations will resume, and stamp duty will be payable on all homes over £125,000.

Manchester Student Market

Manchester is home to over 100,000 students across its five higher education establishments, making it one of the biggest student hubs across Europe.

High tuition fees are constantly reinvested into the city, evident from the incredible infrastructure around Manchester. Additionally, students are keen to spend their money in local businesses, a key factor for a flourishing city centre.

People relocate from all over the country, and the world, to study at Manchester’s prestigious universities. This vast amount of highly skilled students transition effortlessly into the high-profile businesses in the city.

Manchester refuses to stand still. The constant development means that the city attracts global businesses. Unilever, Amazon, and the BBC have all cemented themselves in Manchester, offering outstanding natural career progression for graduates. Interestingly, Manchester has one of the highest student retention rates, with over 50% of people who study in the city choosing to base themselves there after graduation.

For investors, this offers a highly lucrative opportunity. These graduates are looking for centrally located, high-quality accommodation which will suit their newly employed needs.

How 2020 Affected Manchester

Unsurprisingly, rental costs dipped at the start of the Coronavirus pandemic, with the housing market almost grinding to a halt. The market was too turbulent for many investors, with tenants struggling to hit monthly rental costs due to job losses.

However, following this initial downturn, the Manchester market saw massive growth. Between January and December 2020, house prices in the region increased by a staggering 9%. Comparatively, prices in London rose just 3.77% throughout the year.

2021 and Beyond

There are exciting predictions for Manchester in the following years. When looking at the UK more broadly, Birmingham and Manchester are leading the way.

House prices are predicted to grow nearly 18% in Manchester by 2025, and although there are always risks attached, Manchester appears a safe bet in the eyes of many investors.

Risks Associated with Investment in 2021

Of course, no investment comes without risk, and property is no exception to this rule.

2020 showed us that anything is possible. Manchester had an incredible bounce-back considering the downturn at the start of the year, but investors learned a stark lesson about being savvy with their property.

There are two clear ways in which property investors can help mitigate losses.

Firstly, work with a dedicated property investment company, such as Track Capital. Investment companies have expertise in the sector and can carefully match investors with suitable properties. Additionally, investment companies have a range of properties in their portfolios and may expose landlords to new asset classes they had not previously considered.

Be it commercial property, purpose-built student accommodation, or off-plan homes; an investment company will help you make the wisest decision.

Secondly, every investor must diversify their portfolio. There should be diversification with regards to both location and asset style. Varying your investments means that your portfolio will be able to withstand fluctuations in the market.

Manchester Market Recap

  • The population of Greater Manchester is close to three million, meaning there is tremendous scope for rental investments in the area.
  • Students are an enormous driving force behind the booming Manchester economy, with the region offering one of the biggest student hubs across Europe.
  • The vast regeneration projects across the city have drawn massive businesses to the area, which help boost the student retention rate.
  • The stamp duty holiday ends in September 2021, with investors urged to complete their transactions before this date.
  • As with any investment, there are significant risks attached. The best ways to mitigate these risks are to work with a dedicated property investment company, and continually diversify your assets.
  • With house prices predicted to continue to soar, there has never been a better time to invest in the city.

For more advice, contact Track Capital at [email protected].

CategoriesInvestor Advice

How Do I Start Investing in Property?

Following the trends set out on the continent, the UK is quickly becoming a nation of renters. From families looking for long-term rentals to students in search of high-quality purpose-built accommodation, the demand for rented property is massive.

There is also a huge market for rented commercial premises, with many businesses on the hunt for central-based offices.

After seeing these vast gaps in the market and the lucrative returns they can generate, many investors are turning their hands to property.

What is Property Investment?

Property investment is the process of purchasing a residential home or commercial premises with the sole purpose of generating an income.

In most cases, the investor will never live in the property.

Instead, they will buy the property to rent to tenants. This will generate a monthly profit, providing the investor with an additional and often lucrative income.

Many choose to work with tailored investment companies. A property investment company will generally have a bank of well-researched assets and will help to link the individual with the investment best suited to their circumstances.

Additionally, property investment companies will help find legal representation and after-sales support.

Types of Property Investment

There are several ways in which a beginner can break into the property market in the UK. The options will depend entirely on the amount of capital you have to begin your journey and how ‘hands-on’ you intend to be throughout the process.

Buy-to-let is the most common form of property investment in the UK. As the name suggests, an investor will purchase a residential or commercial property and lease it to tenants who will pay a monthly rental fee.

This is considered the least risky option. Providing the area is well researched, the property should generate a healthy, regular income. However, those new to investing should be aware that buy-to-let is considered a long-term strategy, and therefore unsuitable for those looking to make immediate returns.

On the other hand, many investors choose the buy-to-sell option, giving much faster returns. However, this option requires a very hands-on approach and is considered to have slightly more risk attached. Drops in the market where a quick turnaround is needed can cause the landlord to lose money on the property.

An alternative type of property investment comes in the form of a Real Estate Investment Trust (REIT). This allows individuals to buy into property investment companies that are listed on official stock exchanges.

In these circumstances, the money is pooled together to invest in various forms of property. The income is paid to the investors in the form of dividends. REIT’s can be a great way to diversify investment income, but again are only suitable for those who are content with a long-term strategy.

Is Property A Good Investment?

Of course, it is impossible to say whether anything is a ‘good’ investment.

However, buy-to-let properties regularly provide a stable income for investors.

Commercial properties commonly take a little longer to find a suitable tenant, yet the tenancy periods on these buildings are usually significantly longer. Whereas tenants for residential homes are commonly much easier to find, yet tenancies will likely be substantially shorter.

Once tenants are in the property and a management company is appointed, there is very little the investor needs to do. The investment will happily tick along in the background, allowing you to focus on other tasks.

Most landlords aim for yields of between 5-8% for residential homes, with more sizable gains currently available in the north compared to the more expensive London properties. For those looking for long-term returns, property is considered an extremely worthwhile investment.

Investment Type Property Cryptocurrency Stocks
Pros o   Mortgages are available – meaning more significant investments are possible.

o   Is it a stable, long term investment, that is considered relatively low risk.

o   Property can attract unique tax benefits, especially for those looking for a stable requirement income.

o   There is a consistent, long term increase in property prices across the UK.

o   Potential for very high, fast returns.

o   Allows for rapid diversification as investors can choose many different cryptocurrencies.

o   Cryptocurrency is easy to liquidise, meaning you can easily access the funds.

o   It is very straightforward. Investing in stocks can be done instantly through smartphone apps.

o   Easy to sell, so investments can be quickly liquidised.

Cons o   It can be difficult to diversify without large cash injections.

o   Fast returns are not generally possible with property investment.

o   It can be slow to liquidise the assets.

o   Highly volatile, meaning there is potential for huge losses.

o   No official regulation, so open to a range of illegal activity.

o   Many are still unsure how cryptocurrency will play out on a global scale.

o   So much mixed information online makes stock investment challenging for those without expertise.

o   Very time consuming as thorough investigation is needed before investing.

o   The stock market can be extremely volatile.

 

Risks Associated with Property Investment

There are, of course, risks associated with the property, as with any other type of investment.

For those interested in buy-to-sell, dips in the market can mean the profit is considerably less than expected. Alternatively, it may force investors to hold onto properties for longer than they initially intended.

Conversely, for buy-to-let, investors should be aware that every property will attract void periods occasionally. During these times, mortgage repayments still need to be paid, as well as base payments for utility bills.

Another risk associated with property investment is the fact that money will become tied up in the asset. Whilst property is an excellent way to boost your income, the money input becomes wholly inaccessible. For those that might require immediate liquidation, property may not be the most sensible option.

The best way to protect yourself against potential risks is to diversify your portfolio. Working with a range of asset styles in a variety of locations means that you will be less vulnerable to market fluctuations.

Decide What Type of Investor You Are

There are many options available to those who wish to invest in property. The asset class will depend entirely on what the individual hopes to gain from the investment.

Most property investors fall into one of three groups.

  • Those looking for a new career path.
    • These investors will generally be searching for hands-on investment opportunities with the scope to develop their knowledge and expertise. Investors looking for a new career path may be drawn to buy-to-sell homes and property development opportunities.
  • Those looking for a primary income source.
    • This applies to investors who are not yet ready to give up their current career. Buy-to-let will be most applicable for these investors, in either the residential or commercial sector. Working with a management company to oversee the daily running of the property allows the investor to take a back seat, yet reap the rewards.
  • Those looking for an extra income source.
    • This is usually best for those new to the sector. Starting with a small second property, or a REIT investment, can give individuals the steppingstone and confidence to build their portfolios.

Acquiring the Funds

Once you have decided what kind of investor you want to be, you must generate the funds to purchase.

Normally, rental properties are purchased with a cash payment, or using a buy-to-let mortgage. This way, the investor has complete control regarding how much they pay for the property and the monthly rental charge they request.

There are, however, substantial costs associated with this. Buy-to-let mortgages typically require a 25% deposit, and most second homes will attract stamp duty charges.

Hence, many are looking towards alternative methods of investment, including REIT’s.

These give new landlords a step into the investment world without such a considerable transfer of capital. However, with this initial smaller output, the return will undoubtedly be significantly less.

How Much Do You Need to Begin Investing?

Of course, this question depends on a vast range of factors. However, we appreciate that those looking to invest require concrete numbers.

Although it can be done with less, Track Capital believes that £50,000 will provide investors with a healthy sum to take their first step.

Basing this on a 25% deposit, £50,000 will allow the purchase of a £200,000 property. Off-plan, city center homes are the best place to start.

Off-plan investing allows you to buy at a much better base price, as you are purchasing directly from the developer. This value will afford you a quality two-bed property in a high-performing city such as Manchester or Liverpool, attractive to tenants and great for capital growth.

As well as better cost prices, buying off-plan allows you more choice, which means you will be able to choose the home with the best view, or benefits such as a balcony and parking.

Once equity has been acquired in the home, it can be removed and recycled into new properties, which is an excellent way to build a robust portfolio.

Building Your Portfolio

Investing wisely in property takes time, patience, and expertise.

Whilst it is tempting to take an ‘all guns blazing approach, you should slowly and cautiously build your property portfolio. Investors should continuously diversify where possible, meaning they invest in different asset classes and locations.

This is where investment companies shine. These dedicated businesses allow you to invest in new cities without ever even visiting. Enabling landlords to reach new areas of the country, confident that space is well researched and offers strong yields.

Once a property is purchased, the importance of a strong management company cannot be overstated. They will deal with sourcing tenants, conducting background checks, and dealing with any ongoing maintenance issues.

When building a portfolio, it is crucial to do so with the end goal in the forefront of your mind. Consider what your ultimate aim is. This may be to provide a sustainable retirement income, or build a portfolio that can be easily liquidated in the future.

Focusing on this will help the investor to make the most healthy and sensible property decisions.

Key Details 

  • There are many ways to invest in property in the UK, with buy-to-let being the most popular method.
  • Property is considered a strong investment, but as with any asset, there are risks attached.
  • Before beginning a property investment journey, the individual must assess their circumstances and consider what investment style they want to be involved with.
  • Build your portfolio cautiously, always focusing on your end goal.

For more advice, contact Track Capital at [email protected].

CategoriesInvestor Advice

What is A Good Rental Yield?

Whether you are a first-time landlord or an experienced investor, calculating rental yields is a crucial factor in determining the success of a property.

Property offers a lucrative investment opportunity to generate a regular income with a relatively ‘hands-off’ approach. However, ensuring the rental charge carefully balances against the outgoings associated with the property is crucial.

There are two primary forms of income produced from a rental property. The first is the annual rental charge, which is generally paid monthly. The second income comes in the form of capital growth, which refers to the increase in value the property attracts throughout ownership.

What is A Rental Yield?

Quite simply, the rental yield is the amount of income that you can expect to receive from a single property in a standard year.

The rental yield forms the core metric of which the financial success of a property can be measured against, and is displayed in a percentage format.

Why is Rental Yield Important?

Rental yield is the most accurate representation of how financially strong your investment property is.

The housing market can be highly volatile, and predicting what a home will be worth in ten or twenty years is nearly impossible. Therefore, investors choose to focus their calculations on the rental yield rather than the appreciation of the home’s value.

Rental yields allow the owner to balance the price of the home with the annual income it creates.

Properties in London are known to attract six times the monthly rent of those in the north, which initially draws investors from far and wide. However, upon further investigation, when factoring in the increased price of the home and the other costs associated with being in the capital, the profit can often be very weak.

How to Calculate Rental Yield?

Calculating the rental yield of a property is very straightforward.

Simply divide the property value by the annual rent income and times it by 100.

Imagine the monthly rent is £700, and the property is worth £250,000.

So, the annual rent income will be £8400. £8400 ÷ £250,000 is 0.0335. Multiply this figure by 100, and the rental yield of the property is 3.36%.

However, investors must understand the differences between gross and net rental yield. The figure quoted above uses very crude numbers to develop the gross rental yield percentage. A net rental yield considers the other costs associated with the property, such as mortgage repayments and insurance premiums.

To calculate the net yield, the annual costs for the home must be subtracted from the rent income. This figure can then be divided by the value of the property and multiplied by 100, to give the net figure.

As an example, consider the same annual rental income, £8400.

However, you may have £250 worth of costs associated with the home each month, amounting to £3000 per year.

So, £8400 – £3000 = £5400.

£5400 ÷ £250,000 = 0.0216. Multiply this figure by 100 to give a net rental yield of 2.16%.

Net rental yield is a much more accurate figure for investors to consider, carefully balancing the costs of the property with the income it delivers.

Capital Growth

Aside from rental yield, capital growth offers a secondary form of income for investors.

Sometimes referred to as capital appreciation, it describes how the home’s value will increase throughout ownership.

The property market can be turbulent, so predicting capital growth figures can be highly challenging. However, it provides a significant source of income for property investors in the UK.

Average Rental Yields in the UK

As would be expected, rental yields fluctuate hugely throughout the country, with various postcodes in the north often attracting the best results.

For example, central Nottingham postcodes provide some of the most outstanding yields, reaching up to 12%. Whereas many London areas struggle to reach 5%, showing the dramatic impact house prices have on the overall profitability of a home.

Rental Yields on Student Properties

With over 2 million students in full-time education in the UK, the growth of purpose-built student accommodation has been staggering. Recently, the expectations of students have increased dramatically. Those studying in the UK now expect upmarket properties in central locations and are willing to pay a premium for them.

Purpose-built student accommodation in Birmingham and Leeds is known to attract yields of 6.5% and 6.4%, respectively, showing the money to be made from this sector.

Some investors are deterred from this asset class due to the high turnover of tenants it requires. However, the shortfall of beds in nearly every university city means this investment style is generally a relatively safe bet. With a competent and reliable management company, your student let should generate a healthy income annually, with a relatively hands-off approach.

Notably, the university accommodation attracting the lowest rental yields are located in London, with housing surrounding the Imperial College sitting on average at just 1.7%.

What is a Good Rental Yield?

Most investors aim for a rental yield that sits somewhere between 5%-8%.

Anything around the 7% mark will be considered a ‘good’ rental yield.

The expected rental yield depends entirely on the style of property. Studio flats attract very lucrative profits, as the initial outlay will be substantially less. The highest of all gross yields are found in the single rooms rented as part of a House in Multiple Occupation. However, they will undoubtedly also attract much higher management and agency fees due to the regular changes in tenancy.

One-bedroom apartments produce higher yields than semi-detached or detached homes. However, these larger properties generally entice tenants with longevity, reducing the risk of the property sitting empty, and eliminating the costs associated with regular tenant changes.

Any property generating a yield of less than 4% will be considered to have been overvalued at the point of sale.

How to Increase Rental Yield

Of course, the simplest way to increase the rental yield is to lower the current outgoings.

Regularly changing insurance suppliers and monitoring your mortgage plan is the easiest way to reduce the overheads of a property. Different deals and tariffs are introduced monthly, so contacting a mortgage broker for a new quote can save hundreds of pounds across any given year.

Be sure to also shop around for landlord insurance, which could deliver a substantial annual saving. Additionally, consider your management or letting agency fees. Whilst the importance of good quality management cannot be overstated, for loyal landlords, there may be some room for negotiation in your annual charges.

Secondly, refurbishing or converting the property can drastically increase the monthly income. Spending money on a rental home will always be a delicate balancing act but can often be the key to boosting the annual yield.

Whilst replacing kitchens and bathrooms is a significant single outgoing, a fresh, modern suite in either of these rooms will undoubtedly allow you to place your property at a more premium price point.

Thirdly, be flexible. The UK is becoming a nation of renters, which means tenants are looking for properties that offer longevity. Getting the first step on the property ladder has never been more challenging, so many families are looking for rental properties that they can grow into. Offering flexibility regarding alterations or pets allows the owner to increase the monthly rent and attract genuine, high-quality tenants to the home.

Rental Yield Recap

  • A rental yield above 5% is a great ballpark figure for investors to aim for, with anything above 7% considered excellent.
  • Whilst student lets and Houses in Multiple Occupation generate the highest yields; they can also attract the most administration.
  • Net rental yield is a much more accurate figure than gross rental yield, and there are many ways a landlord can reduce their overheads to increase this annual percentage.

For more advice, contact Track Capital at [email protected].

CategoriesInvestor Advice

4 Reasons to Invest in Liverpool

Liverpool is considered one of the best places in the UK for property investment. The city is vibrant, with an eclectic mix of students and professionals complementing the diverse and rich culture.

Totally Money included 6 Liverpool postcodes in their list of the ‘top 25 UK postcodes to invest in a buy-to-let mortgage’. House prices in Liverpool sit well below the market average, yet rental incomes remain high. It is no wonder businesses and investors choose this area in the north over many more expensive properties in the south.

Liverpool has cemented itself as a core city in the northern powerhouse, with excellent train links connecting the area. Additionally, the long-awaited completion of the HS2 high-speed rail network means that the journey from Liverpool to London will take just 94 minutes.

The spotlight on the north is continuing to shine, with many businesses and investors choosing lower cost homes with stronger yields.

A Revived and Thriving City

In 2008 Liverpool was awarded the city of culture. Since then, through various regeneration schemes, the city has been transformed. From shopping centres to sports stadiums and even the dock itself. Liverpool has been given a new lease of life which has seen a plethora new residents flocking to the area.

Not only did this regeneration spark a boom in tourism, but businesses saw the vast opportunities in the city. Large firms began building bases in Liverpool, appreciating the exceptional transport links and the city’s industrial heritage.

This means that demand for property in the city has skyrocketed, particularly high-end, centrally based accommodation.

Successful Student Community

Liverpool is home to four universities that attract students from around the globe.

Whilst most students opt for university halls in their first year, they are demanding high quality, functional and central locations for their final years, and they are willing to pay a premium for it.

This demand for student accommodation is set to rise in the coming years, with the local universities becoming increasingly popular. Private rental properties are needed to make up the shortfall of beds in student accommodation.

Houses in Multiple Occupation are often investors favourites, which are perfect for the ever-growing student population.

A Booming Business Area

This flourishing student city provides the perfect stream of fresh graduates every year to complement the local businesses.

Liverpool beautifully and effortlessly manages to blend a thriving scene of start-up companies with established businesses that have been household names for decades.

For those looking to invest in local residential or commercial property, the options are endless in Liverpool.

A Luxury Lifestyle

Liverpool offers its residents a luxury lifestyle that many other cities outside of London struggle to match. It is popular with students, young professionals, and families alike, willing to pay a premium to live in such a vibrant and exciting city.

It is a lively city packed with galleries, museums and, of course, the iconic waterfront.

The city draws tourists from around the world, all eager to experience the legendary nightlife. From the famous Beatles trail to the bustling underground music scene, there is a night out for everyone to enjoy in the city. Aside from the iconic music venues, Liverpool is football crazy, with tourists from all around the globe visiting the stadiums every year.

Reach out to the team at Track Capital to discuss our Liverpool property investments.

 

CategoriesInvestor Advice tips & tricks

The Benefits of Remote Property Investment

Remote property investment is on the rise.

It offers the freedom to invest anywhere in the world, from the comfort of your own home.

Remote property investment provides investors with the freedom to rapidly build their portfolio with a range of properties in different locations, and at various price points.

What Does it Mean to Invest Remotely?

Property investors no longer want, or need, to physically visit properties.

Not all real estate markets are created equal. So, knowing that you can easily invest in property in other cities, countries, or even continents means that investors can reap the rewards without having to commit to the regular travel that traditional investment required.

Remote property investors generally work with a local property investment company. This local company will typically have a portfolio of properties and will be able to connect the buyer with local lawyers and currency exchange services.

Working remotely takes the stresses away from investing. It makes the process much faster, allowing investors to reap their rewards much more quickly.

Remote Investments Allows You to Diversify

Investing remotely means that the world is quite literally your oyster. It allows you to overcome geographic limitations and diversify your portfolio.

Investors can tap into up-and-coming markets with exceptionally high rental yields, regardless of where in the world they are based. Sticking close to home can be risky, as one market crash and your whole portfolio could be in trouble.

For those with a particular passion for commercial property, the market close to home may simply not be broad enough, and remote investment allows you to expand your portfolio without the commitment of regular travel.

Allows for Differences in Risk Appetites

Working remotely allows investors to navigate regional economic downturns, using the power of local investment companies to build in areas that are currently flourishing.

Of course, there are risks associated with every investment, and real estate is no exception to this. Yet, every investor will inevitably have a different appetite for risk. For those who want something more secure than their local area can offer, remote investment provides the solution.

Keeps Things Strictly Business

Remote property investment ensures no emotional connection is developed between investor and property.

This makes it much easier to make intelligent financial decisions, allowing investors to expand their assets.

Speeds Up the Whole Process

Working with a dedicated property investment company means that you have access to the best assets in a range of locations, as well as knowledge of the latest off-plan builds. This means decisions can be made quickly, and sales are generally completed in a much more timely manner.

Property investment should provide you with a passive income, and working remotely allows for a completely hands-off approach. Many investors favour this method, especially when trying to scale their businesses.

For Commercial and Residential

There appears to be a myth that remote property investment is only for those looking to invest in commercial property. Whilst the commercial market is popular, remote working is ideal for every asset class.

Every property investor knows the value of Houses in Multiple Occupation, and student lets. Remote investing allows you to scale rapidly, using an investment company as an inside track into the thriving student markets.

How Track Capital Can Help

Successful remote property investment centres on surrounding yourself with a strong team.

Track Capital is a transparent and passionate property investment company based in the UK. We pride ourselves on finding the best possible investments for our clients, providing a bespoke service to ensure properties align with their investors.

We are also proud to offer comprehensive after-sales support, a crucial element to ensuring smooth remote property investments.

The best part: we do not charge our investors a penny.

To find out more today, contact Track Capital on +44(0)203 627 3987 or [email protected].

 

CategoriesInvestor Advice

How To Invest £50,000 In Property [Podcast With Transcript]

In our latest podcast, Track Capital’s directors, Nick and Tobi, discuss how to invest £50,000 in property. You’ll learn about the best way to turn £50,000 into a growing property portfolio, with clear and comprehensive explanations of the strategy to employ, factors to consider, and potential financial gains.

Spotify users can listen to the podcast using the audio below, or alternatively check out the episode listing on our Anchor page to find links for other streaming platforms. For users who prefer to read, rather than listen, we have a full transcript available below.

Transcript

[Tobi]
Welcome to the Pure Property podcast where we talk about all things property and property investment.

The aim of the podcast is to provide bitesize chunks of our industry insight and knowledge to help you invest intelligently.

So, it’s the first podcast of the new year. It’s a little bit different, usually Nick and I are in the office facing one another but today, due to lockdown, we’re actually doing this remotely!

[Nick]
Yes, a bit of a change for us but hopefully all the technical issues work out well. It’s good to be back doing a podcast for 2021 and hopefully there are plenty more to come this year.

[Tobi]
It’s a good one to kick off this week as well. We’ve had some promising news despite being in lockdown, with the covid-19 vaccine being rolled out and the Brexit deal announced. So hopefully we’ll be back to some form of normality sometime soon.

[Nick]
Certainly, a lot of people will be coming back to the property market now. The Brexit trade deal was a big confidence boost, creating a bit of certainty and a pathway for how the UK’s relationship with the EU will unfold. And of course, you’ve got the vaccine roll-out as well.

So whilst not every investor will be diving back into the property market, we’ve certainly seen an uptick in enquiries – especially from overseas. Looking forward, hopefully that will continue.

A lot of investors will be thinking, “I’ve got this capital set aside, I’ve got a deposit, I’ve got £50,000 to invest – now how do I actually go about that?”.

And that’s what we’re going to discuss today: how to invest £50,000 in property and get the most from your funds.

[Tobi]
We looked at the average pot of money most investors have and that’s roughly around the £50,000 mark. So if you’ve got a similar budget, you’ll learn how we’d invest it.

Let’s start with why you should invest your £50k in property because there are plenty of things you could invest your hard-earned cash into.

There are a few reasons we advocate investing in property above all else.

First, you can leverage using a mortgage, which minimises the risk and means you can put in less of the money needed. For example, if there’s a property worth £100,000, with a mortgage you’d only need to put in £25,000 as a deposit to purchase the property. So you don’t have to stump up the full £100,000. Of course though, that does mean you’ll have a mortgage on the property, so you need to bear that in mind as that comes with its own risk, although that said lenders are very good now with their strict criteria and stress tests, so if they’re happy to lend on a property it can be a confidence boost.

Another reason is that property has a proven track record. We’ve got years and years of data going back a very long time, and the one thing you can always see is that property is very robust over the long-term and there’s a consistent, upward trend in prices. There are peaks and troughs, of course, but over the long-term, prices are always steadily increasing.

[Nick]
I agree with that. It’s one of the fortunate things about working in the UK property market, it’s one of the most well-established and robust systems around.

It’s really important to take a medium to long-term view of the market – not how it’s going to perform over the next year or two, but how it’s going to perform over the next 10-15 years, and how has it performed over the past 40-50 years.

It’s almost comparable to the stock market. When people look at the stock market, they get the impression that it’s volatile and there’s lots of ups and downs, with companies going through successful phases and then downturns depending on millions of factors. However, if you look at the FTSE or the S&P over the long-term, there is an upward trend there.

[Tobi]
Right, and then a third reason for choosing to invest in property is that it provides monthly income, which can be a passive income stream.

And there’s the capital growth factor, as we already touched on in regards to prices. Capital growth can be an excellent way of recycling cash or building the pot back up to re-invest again in the future.

And finally one more factor, which is linked to supply and demand, is that land is finite. There’s only so much we can build, so that supply is always going to be limited to some extent – and that will affect prices.

In brief, those are the advantages of property investing. To summarise:

  • You can use a mortgage
  • Property has a proven track record with a consistent upward trend
  • It provides another source of monthly income
  • Capital growth can enable re-investment in the future
  • Limited supply of land means prices should always increase

So, now we’ll focus on how we would assist an investor looking to spend £50,000 on property. We are going to focus on a specific type of investment, based on the fact there’s a limited pot of £50,000. And what is that type of investment?

[Nick]
There are plenty of property strategies out there: buy, refurbish, refinance, rent-to-rent. There’s plenty of things that can be done, but ultimately we want to consider how we can generate the strongest return on a £50k investment in the medium-to-long-term.

So with that in mind, we recommend investing your £50,000 into an off-plan property. Go for a city-centre, residential apartment in a high-growth city where we’re likely to see good capital growth and appreciation over the long-term.

One of the main reasons we recommend this approach is because with off-plan property, you have the chance to buy-in at a discounted price. You’re buying at base pricing, direct from the developer.

In addition, if you’re working with a quality partner that sources developments and has a strong working relationship with developers, you should actually be able to secure property at a discounted rate even in comparison to other off-plan projects as well.

So it’s a really good opportunity to get into property at a much lower price, which will usually far outweigh any rental income that you may get from buying a ready-to-let property.

[Tobi]
It’s instant equity as well. As people say in property, it’s the price you buy at, not the price you sell at, where you make your money.

[Nick]
Absolutely, buying in at a discounted rate means you already have a margin of profit.

And what’s more, you have the chance to benefit from any capital growth during the construction period. So ultimately, what you’re doing is putting down a deposit during construction, but gaining from the growth of the full property value despite not having paid the full amount. That’s going to put you in a really strong position to get good appreciation over the long-term.

Another factor to consider for off-plan too is that you get the pick of the apartments – when we’re buying apartments we want to go for something unique to minimise void periods, increase tenant demand and get good resale values. That unique factor could be a balcony, corner views, a duplex apartment, etc.

[Tobi]
The earlier you get in, the more choice you have. If you’re looking at a block of apartments, if you get one with a unique factor, it can help with both sales and rental demand and you can charge a premium on both.

One more aspect as well is that you have the chance to buy parking spots, which can make a huge difference for a city-centre property.

[Nick]
That’s why it’s worth focusing on off-plan property and why we suggested that specific strategy for the £50,000 budget. You could buy a freehold, 3 bedroom terraced house, for example, there’s going to be thousands of them available on the market for investors at any one time.

Whereas if you’ve got a unique apartment, you’ve got parking, you’ve got proven tenant demand, it’s going to be really appealing in the long-term.
So it’s all about buying in at the discounted rate, then increasing that value from the factors we just discussed.

[Tobi]
That’s a very good point. If you look at busy markets, such as we’re experiencing in the north with Liverpool, Manchester, and Leeds, you have to remember any houses or secondary-market apartments already have a lot of eyes on them, so the demand is massive and that pushes up the price. You end up getting into bidding wars, which can cause you to overspend.

Instead, off-plan properties have less eyes on them, so you’re not getting caught in bidding wars and you know what the price will be. It’s a lot more straight-forward.

[Nick]
A reason for that, which I don’t think many investors are aware of, is that developers place restrictions on marketing their projects. You can place generic adverts on Google or Facebook, for example, but for the majority of developments we market, you can’t actually put adverts on places like Rightmove and Zoopla, which are huge property platforms. But that gives us the opportunity to limit the extra competition.

So we’ve discussed plenty of advantages of off-plan property there, but ultimately the main thing is that off-plan has the best chance of delivering the strongest possible return on your original £50,000 budget.

With that in mind, where should you buy?

[Tobi]
Location is going to be very important, especially with a limited pot of money because we want to find somewhere with strong capital and rental growth potential.

If we had an investor in front of us today, our top two recommended locations would be Manchester and Liverpool. The reason we lean towards those two cities is that we’re really focusing on the capital growth aspect – so we’re looking at places with a good track record for growth from market data.

Research is key for finding a location though. We always do a lot of the research for our clients, but we still recommend they do their own as well. For example, if you look on Zoopla, recently they’ve been saying Manchester has had a 27.18% increase in house prices over the last 5 years. That’s just over £43,000 as an average, which is excellent.

There’s also plenty of regeneration in the city too, which is a great fundamental to look for as it can indicate further growth in the future.

We can also look at data like the home price index. In their November 2020 report, Hometrack, for example, stated Manchester is seeing a 5.7% year on year growth.

So again, not only can we see it’s had good figures in the past, but it’s carrying on too. That data gives us the confidence we need to say this is a good place to invest the £50,000 into.

[Nick]
The reason we’re focusing on the capital growth in these cities is that we benefit from the capital growth, then we can withdraw the equity we’ve built up, then recycle those funds and put them into another property investment.

The alternative is to look at cheaper cities, the likes of Stoke, Hull, Bradford, Burnley, for example. For the £50k budget, you may even be able to secure two properties in those cities, but it’s going to take you really long to build up equity in the property because the capital growth is more limited in those cities. Whilst you may get a higher rental yield in the short-term, it could take you longer to build a portfolio.

[Tobi]
Good point. Yield is obviously great, but it drip feeds in and it can take a while to build up your pot again. That isn’t a bad thing, it’s good to look at yield because that’s a monthly income, but if you want to grow a property portfolio then the best way of doing that is getting a big chunk of money you can draw out of a property. And the quickest way to do that, in this instance, is through capital growth.

[Nick]
Now, when we’re looking at what to buy specifically, in most cases what we say to people is to go for a city-centre property, where there are investment fundamentals: major employers, big education institutions, strong transport links, and so on.

If those things are in place, we know the demand for the property is probably going to be there. And if it is in the city-centre, it’s more than likely going to be an apartment.

So we recommend to go for city-centres, and go for a high-quality apartment that’s going to be in high demand.

[Tobi]
And that means demand in both rental and sales. That’s going to give you the highest chance of good rental income and a high sales value.

The quality is important. You want to be looking at good developers, good builders, good spec finishes – these are all little factors that help.

[Nick]
To sum up all of those different factors then. We’ve got the £50,000 there, which we want to grow a property portfolio over the long-term and really build some wealth, so we want to go after quality, off-plan developments. We want to get a unique apartment that will attract tenants and future buyers. We want to target a city with really strong capital growth potential so we can potentially withdraw funds at a later date to buy the next property. Then we want to make sure we’re getting a really good product with excellent specs, from a good developer and builder. And finally, by leveraging with finance and buying during the construction period, we’ll benefit from growth during construction.

Now, let’s move on to a specific example now so we can see how our strategy works in terms of real-life finances.

[Tobi]
We’re going to call this strategy “complete and repeat”.

Let’s say we’re looking at an off-plan property. It’s 12 months off completion and we’ve secured a conservative 10% discount (we usually get more, but we’re going on the low end for this example).

It was £150,000, but we’re buying off-plan for £135,000. We secure that property with a 30% deposit at the price. That means the developer cannot turn around and try to increase the price in a year’s time, because you’ve already exchanged contracts and they’re legally obliged to sell the property at the agreed price.

That 30% deposit will be £40,500. When you factor in stamp duty, legal costs and, potentially, a furniture pack for the apartment, that will round up to around £50,000.

So that’s your £50,000 budget invested all into a property.

Twelve months later, the property is completed and you get a tenant in. You rent that out for the following two years.

Since you secured your investment, prices have increased 4% year on year. So from the time that we secured the property at that price, to the completion, and then to the end of your two years renting it out, that will be a capital growth of 12% in total (4*3%).

Now keep in mind, with that 4% we are being conservative. The prices we’re discussing are realistic prices in Liverpool, for example, and Savills have forecasted a 27.3% capital growth over the next 5 years, which works out at over 5% a year- making our 4% figure very realistic.

So, now we can figure out how much the property is worth. The market value when we secured the property was £150,000, then add on the 12% increase and you’ll now have a property valued at £168,000.

That leaves you with £33,000 equity, which is excellent because that’s a big pot of money you now have available.

But there’s more, let’s say over the two years you’ve been averaging a net rental income of £400 per calendar income. That will give you £9,600 over the two years.

Take the £9,600 plus the £33,000, you’re looking at a total of £42,600, which is a deposit for another property!

Obviously, that’s a very simplified example, but it’s realistic in terms of the figures. So it shows how you can recycle the money, pull it back out from your investments and re-invest it.

A lot of people don’t see that, unfortunately. They’ve got £50,000, but they don’t think they have any chance of building up a property portfolio, but this example proves that wrong. The “complete and repeat” strategy does work.

[Nick]
Brilliant, hopefully that was really helpful for our investors. The figures may vary slightly from case to case, but the idea is to show our listeners the power of recycling money from your property investment.

It won’t take you long to build up a portfolio, if you do 3 or 4 of these cycles, you’ve got a substantial property portfolio.

The only thing I’d add is in regards to the additional costs that Tobi mentioned. We’ve got the initial 30% deposit, but then additional costs of stamp duty, legal fees and furniture costs. We can add value in financial terms in some cases because we can pre-negotiate deals with developers. In instances where we take on 100-200 apartments for sale, the developer might say to us, “For any buyers who get in earlier on, we’ll offer a stamp duty contribution”. And that might be 50% of stamp duty covered, or in some cases – like one of our projects at the moment – it can be the full stamp duty covered regardless of whether you’re a resident or non-resident. There are potential savings of up to £20,000.

Why would developers offer such deals? In a lot of cases, they’ve got hundreds of units to sell and they want to be competitive. We’ve got external factors like Covid and Brexit, so now is a good time to squeeze extra incentives out of developers. That can be in the form of stamp duty, as mentioned, or it could be a free furniture pack or contributions to legal fees.

It’s worth considering, compared to buying a property on RightMove, if you can get incentives across these three areas (SDLT, legal fees & furniture) then you can really save yourself a significant amount of capital.

[Tobi]
I hope that was very insightful for you. If you do have any questions feel free to reach out to us, we’re always a phone call or email away.

Thank you for listening and we’ll see you next time.

UK Property Investment Recession
CategoriesInvestor Advice

Where is the best area to buy property in a recession?

The UK last entered recession in the second quarter of 2008. House prices started rapidly decreasing, with the average house price hitting a rock-bottom low of £154,452 in March 2009.

Ever since, average prices have – by and large – kept increasing. As of March 2020, the average house price in the UK stood at £233,716 – an uplift of 51% in 11 years.

Many savvy buyers will have benefited greatly from buying low and waiting for the market to recover. Even more so if the property was purchased as an investment with the intention of renting it out (often called a ‘buy-to-let’).

In such cases, owners will have benefited not just from the increase in property value, but also the rental income made from the property during the past 11 years.

Undoubtedly, property investors across the UK will be watching carefully to see how the UK’s latest recession, officially confirmed in August 2020, will impact the property market. Similar to 2008-2009, it could prove to be an unmissable opportunity for those wanting to start or expand their property portfolios.

With that in mind, we have gathered data from the HM Land Registry to look at the areas of the UK which saw the largest growth in average property prices between the first quarter of 2009, when prices were at their lowest, and the first quarter of 2020.

We’ve combined this with data on average rental yields too, so we can identify areas offering the ideal balance between capital growth and rental profitability.

The results provide an interesting look back at the UK property market over the past 10 years, but more importantly, they may help property investors to identify locations to consider for the future.

As such, this research answers two key questions:

  1. Where would an investor have been best off buying during the last recession?
  2. How can we apply the findings to future property investment decisions?

Data

The HM Land Registry maintains a database of the price paid in property transactions across England and Wales.

We exported the data for every property transaction, grouped by postcode districts (e.g. SW1), during Q1 of 2009 and Q1 of 2020.

We then calculated the percentage change in each postcode’s average price paid, showing us where prices have increased the most around the country.

Separately, we collected average rental yields for each postcode in 2020 from PropertyData, an excellent source of residential property market data in the UK.
By combining the two data sources, we were able to analyse:

  • Which postcodes saw the largest capital growth, i.e. property value?
  • Which postcodes, with a minimum gross rental yield of 5% in 2020, saw the largest capital growth?

Whilst the former is a strong, simple analysis of the property market, the latter may be more useful for property investors.

Gross yield is a measure of how much income a property generates each year from rent as a percentage of its value. We chose a benchmark figure of 5%, as this is typically high enough for an investor to achieve a yearly profit, whereas anything lower than 5% could mean the costs of running the property (mortgage, maintenance, etc) exceed total rental income.

Furthermore, it has been well documented that the London property market has performed well and above the level of the rest of the country since 2009. Our findings are consistent with this.

We decided to account for the “London-effect” by duplicating our data: one version included postcodes inside the City of London (those beginning with: N, E, EC, SE, SW, W, WC, NW), and another version excluded those same postcodes.

This left us with four tables in total:

  1. Postcodes, including the City of London, ranked by capital growth
  2. Postcodes, excluding the City of London, ranked by capital growth
  3. Postcodes, including the City of London and with a minimum rental yield of 5%, ranked by capital growth
  4. Postcodes, excluding the City of London and with a minimum rental yield of 5%, ranked by capital growth

We chose to omit Table 4 from this report as only a single City of London postcode made it into Table 3, so the results for Tables 3 and 4 were practically the exact same.

Results

Table 1: Postcodes, including the City of London, ranked by capital growth

The top 20 postcodes ranked purely by capital growth between 2009 and 2020 are as follows:

A table showing postcodes, including the City of London, ranked by capital growth since 2009

Table 2: Postcodes, excluding the City of London, ranked by capital growth

The top 20 postcodes, excluding the City of London, ranked by capital growth between 2009 and 2020 are as follows:

A table showing postcodes, excluding the City of London, ranked by capital growth since 2009

Table 3: Postcodes, with a minimum gross rental yield of 5%, ranked by capital growth

Ranked by capital growth, the top 20 postcodes with a minimum gross rental yield of 5% are:

A table showing postcodes, with a minimum gross rental yield of 5%, ranked by capital growth since 2009

Analysis

Where would an investor have been best off buying during the last recession?

From reviewing the data above, the absolute best place a property investor could have bought during the last recession was in London – in particular, the W11 postcode of Notting Hill in the Borough of Kensington & Chelsea.

On average, had an investor bought in W11 at the start of 2009 and then sold at the start of 2020, they would have walked away with close to £1.5m in profit.

In terms of raw cash, there are only two other postcodes in the entire dataset that saw a similar increase in average sales price: SW 3 and SW7. Both are also in Kensington & Chelsea, highlighting the famous borough’s eye-watering property values.

In fact, through the lens of capital growth, the best places in the country where an investor could have bought during 2009 were mostly in the City of London – postcodes from the City make up 75% of the top 20 biggest increases in average price (Table 1).

However, not all property investors have the funds to purchase in such high-value locations. Instead, the majority of investors are looking for deals which represent great value for money.

In order to identify where an investor would have got better value for money we can look at two things:

  • Capital growth outside of London
  • Gross rental yield

Table 2 shows us where an investor would have been best buying to benefit from growth in property value after the last recession, excluding London.

The results are heavily skewed towards the South East of England, with 90% of the top 20 postcodes in Table 2 within a commutable distance of the capital. The ripple effect of London’s property market is on full-display here, and this is something we’ll pick up on more in the next section.

Meanwhile, if we consider rental yield as a valuable factor – which it is – then the results become much more interesting. With a minimum gross rental yield of 5% applied in Table 3, the top 20 locations a property investor could have bought in suddenly spread much further around the country.

The list is topped, perhaps somewhat surprisingly, by MK9 – covering the very centre of Milton Keynes. After this, we see a mix of areas within close proximity of London (SE28, RM9, RM10, etc) and areas in more Northern parts of the country that have witnessed huge redevelopment projects over the past 10 years (Coventry, Leeds, Leicester, Liverpool, and Manchester).

What can we learn from the results?

History has taught us that a recession leads to a drop in property values – turning a sellers market into a buyers market. In the coming months, investors may have the opportunity to grab a property below market value. So what do the results of this report tell us about where they should look?

Don’t rule out high-value locations

Given London’s domination of Table 1, a key takeaway from this data is that the value potential of “premium” locations with very-high average property prices was huge – far outpacing the average increase in property values during the last 11 years.

Investors may want to reconsider their stance on comparable situations in major cities like Manchester or Birmingham, where many believe the city’s most premium locations have little capital growth potential left. Our results suggest the perception that prices have already peaked in such locations may not necessarily be the case.

Especially when we consider the expected growth of the Northern economy over the next 20 years. With HS2 set to better connect major Northern cities with the capital, and a slew of leading companies setting up bases in the North (HSBC, BBC, ITV, Deutsche Bank, Amazon, to name but a few so far), then it is not unreasonable to suggest we could see London-esque growth in other locations around the UK.

In short, the results highlight the return-on-investment potential of even the most expensive locations over the long-term – something an investor with ample funds may want to keep in mind.

Regeneration is key

Table 1’s results aren’t just all about the strength of the fancy West London postcodes.

Looking at the performance of the East London postcodes is equally as insightful. Many areas covered by the E and SE postcodes have been regenerated in recent years, with projects driven by a demand from young professionals for accommodation close to the capital’s centre. The result is that areas like Camberwell, Clapton, New Cross, Sydenham, Walthamstow, and Walworth – all of which make it into the top 20 – have seen huge increases from what were previously quite reasonable average prices for London between 2009 and 2020.

This is a finding we also see reflected by data from Table 3. Previously dilapidated city-centre areas, which have undergone major rejuvenation and restoration projects, have benefitted immensely from such work in the past 10 years.

Coventry, Leeds, Leicester and Liverpool are all examples, as shown by the data in Table 3, but perhaps the biggest standout is Manchester.

Manchester has several entries in the top 20 of Table 3. Redevelopment schemes have propelled the city forwards in the last 20 years. Ancoats (M4) is almost unrecognisable from the start of the last recession, with the area now filled with modern residential apartment blocks and scores of highly-rated cafes, bars and restaurants (in fact, the city’s only Michelin-star restaurant is based in Ancoats).

Meanwhile, the BBC’s move from London to Salford Quays (M50) was a catalyst for new jobs, infrastructure, businesses and investment in the area, now known as MediaCity. It’s worth keeping in mind that Liverpool Waters, a £5.5bn development project in Liverpool’s L3 postcode, is being built by the same people behind MediaCity.

The takeaway here is that investors should be playing close attention to undervalued, central areas in cities prime for regeneration. Right now, this means looking northwards.

There are plenty of large redevelopment projects with the potential to improve local property values throughout the Northern cities represented in Table 3, for example Birmingham’s Big City Plan, Leeds’ South Bank Project, Liverpool’s Liverpool Waters, and Manchester’s NOMA. In addition, Sheffield (which narrowly missed out on the top 20 in Table 3) is another to consider, with the city unveiling a 10 year economic plan in 2015.

The ripple effect is real

Table 2 is the perfect example of the London property market’s ripple effect. With many individuals, couples and families unable to afford to buy or rent in the capital, the demand for accommodation within close proximity rose sharply following the last recession.

In turn, and exacerbated by the low supply of affordable housing, property values in the South East have seen major increases in the past 10 years – leading postcodes in the South East to dominate the results of Table 2.

In 2020, investors can benefit by anticipating a ripple effect around other major UK cities. Areas witnessing large economic growth in the UK, such as Leeds, Liverpool, Manchester and Sheffield, will be prime candidates, so investors lacking the budget for a city-centre property could instead look to benefit from high-potential, low-cost opportunities on the outskirts of those cities.

Plus, we may now see a higher proportion of the workforce not necessarily needing to be in a city centre each day. The coronavirus lockdown has shown many that ‘working from home’ is a realistic option with benefits for both the employer (saving on office rent) and employee (better work-life balance). It remains to be seen how this will impact property demand, but one potential situation is renters and buyers who no longer need to be in the city centre could look for lower-cost options on the outskirts. The increased demand could really propel property values in those areas.

Above all else, look for investment fundamentals

Finding a balance between monthly rental income and capital growth is the key for any investment decision. Focusing solely on current rental yields will leave investors blind to the progress of a location as a whole in the past 5-10 years, whereas if we only look at capital growth we’ll miss affordable areas with high profitability.

And whilst finding a balance is difficult, the results in Table 3 prove it is possible.

All of the postcodes in Table 3, bar one (IP26), outstripped the average property price growth for the entire UK between Q1 2009 and Q1 2020 (+49.52%) whilst maintaining a rental yield of 5%+.

In fact, if a property investor in 2009 had been looking for a good balance of capital growth and rental yield, the best place in the UK they could have invested was Milton Keynes City Centre.

Milton Keynes has seen a brilliant rise in property prices since the last recession, thanks largely to a strong, service-based economy; the Centre for Cities scores it 4th in the UK for GDP per worker, whilst also ranking it 4th for business startups per 10,000 population.

Furthermore, Milton Keynes is within commutable distance of both Birmingham and London via the M1 Motorway or train – making it a great location for anyone wanting easy access to the UK’s two biggest cities.

And finally, the city has a campus for the University of Bedfordshire, where just under 14,000 students attend. The presence of students can aid local economic performance, whilst supplying a consistent flow of potential tenants for property investors.

In short, Milton Keynes has a number of the fundamentals a property investor should be on the lookout for:

  • Business investment
  • Employment opportunities
  • Accessibility and transport infrastructure
  • Flow of tenants

These fundamentals are key considerations in any property investment decision, and especially so when the economy is under strain – such as during a recession.

Summary

Our research has found that during the peak of the last recession, almost overwhelmingly, London was the best location in the UK where a person could have made a long-term investment in property, given the growth in property values over the following decade.

This is unlikely to come as a surprise to many, given the capital’s status as one of the world’s leading cultural and economic hubs.

However, perhaps the best performing locations within London do offer some food for thought. Before starting this research we anticipated London would dominate, but given the results were ordered by percentage change we thought that London’s eastern suburbs would come out on top, where gentrification and regeneration have led to huge increases in property values.

Many of the city’s E and SE postcodes do appear in the top 20, but the postcode in 1st was W11, Notting Hill – a reminder that luxury property in high-value areas is a very safe choice for those who have the money and are happy to wait for the market’s growth.

The research also identified other leading postcodes where investors would have made a good return had they bought in 2009. These primarily consisted of locations within a commutable distance of London, but we saw a strong representation of Northern cities after applying a 5% gross rental yield filter.

We don’t know how the recession and ongoing coronavirus restrictions will play out over the short-term, but history shows the market always recovers long-term. Therefore, by pausing to reflect on the past, we can better anticipate the future.

Whilst this research has more than exemplified London’s meteoric rise, there is good evidence we may well see similar growth in the UK’s other major cities: Birmingham and Manchester have been well-noted for their progress over the past few years, and the likes of Leeds, Liverpool and Sheffield are quickly gaining too.

For a property investor, now could be the perfect time to enter those markets. We are already seeing property developers offering excellent deals on new-builds, especially off-plan – where investors are in a position of power thanks to deposit protection and the ability to see how the market plays out.

In a decade from now, it will be interesting to revisit these results and re-run the analysis. In the meantime, we hope investors will use the findings to act smartly and make sure they look back with happiness, and not regret over missing an opportunity.

How much money do I need to invest in property
CategoriesInvestor Advice

How Much Money Do I Need To Invest In Property?

As a property investment company, one of the most common questions we are asked is “How much money do I need to invest in property?”.

Unfortunately, there is no easy answer.

The simple truth is that the amount of money required to invest in property will largely depend on the type of property you want to purchase. For example, some properties can be funded with a mortgage, meaning a lower initial cost, whilst others require a cash payment in full.

In addition, investors will need to consider other one-off upfront costs, such as stamp duty, and any ongoing costs, like mortgage payments or ground rent.

In this article, we’ll explore the costs associated with investing in each type of property.

We do recommend taking the time to read the whole article, but if you are looking for a very quick answer, then we estimate that a figure of at least £30,000 is required to start investing in the UK’s lower-priced properties. Read on to learn more and understand how (and why) this figure can change.

Property Types

The type of property can have a significant impact on the money required to invest. Not only does the type of property impact the purchase price, but it can also change how a purchase can be funded – and therefore how much initial capital is required.

In the industry, we call property types ‘Asset Classes’. The following asset classes are the most common for investors in the UK:

  • Residential accommodation
  • Serviced accommodation
  • Student accommodation

In the following sections, we’ll look at the cost of investing in each asset class.

How much money do I need to invest in residential property?

In recent years, you may have noticed major changes to the skylines of the biggest cities in the UK. Property developers are building new, luxury apartment blocks all the time to satisfy the demand of professionals wanting to live in the city centre.

Property investors purchase properties in these residential blocks with the intention of renting them out, rather than living in the property themselves. This allows the investor to gain an income from rent each month whilst, ideally, the value of the property increases over time.

This type of residential property investment is often called ‘buy-to-let’ – simply, buying a property in order to rent it out. It is the most common form of property investment.

The lounge of a buy-to-let residential property

Upfront costs

The big benefit of the residential property asset class is that buyers can purchase using a mortgage, meaning they can get into property with a much smaller initial investment. Of course, this means taking on a debt and a requirement to meet monthly mortgage payments, but the rental income from your property should cover this (and then some).

For buy-to-let investors, 75% loan-to-value (LTV) mortgages are available. This means an investor will need a cash deposit of at least 25% of the property price.

Furthermore, the investor will need extra money for:

  • Stamp Duty Land Tax (SDLT) – in the UK, typically stamp duty is only payable on properties above £125,000. However, if a purchase means the buyer will own multiple properties, stamp duty may be due regardless of the price. You can calculate your likely SDLT using this tool. Please note that between 8 July 2020 and 31 March 2021 there is a stamp duty “holiday” which reduces SDLT for investors on properties worth less than £500,000.
  • Legal fees – a solicitor is required to do all the legal paperwork of purchasing a property. Costs depend on the property value, but usually fall between £1,000 – £2,000.
  • Buffer money – it’s always a good idea to have a little extra cash spare as a ‘buffer’. This helps cover any costs you may not have anticipated, for example purchasing furniture if the property comes unfurnished.

All in all, the amount of money needed upfront to invest in residential buy-to-let property can vary quite wildly. The table below shows how much an investor might need.

Purchase Price Mortgage Deposit (25%) Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£100,000 £25,000 £3,000 £1,000 £2,000 £31,000
£150,000 £37,500 £5,000 £1,250 £2,000 £45,750
£200,000 £50,000 £7,500 £1,500 £2,000 £61,000
£250,000 £62,500 £10,000 £1,750 £2,000 £76,250
£300,000 £75,000 £14,000 £2,000 £2,000 £93,000

Please keep in mind these are rough estimates. Also keep in mind that until March 31st 2021, investors will pay a flat SDLT rate of 3% on any property up to £500,000, potentially saving thousands (for example, SDLT on a £200,000 property will be £6,000, rather than £7,500).

The table suggests a figure of just over £30,000 is enough to get started. There are certainly good buy-to-let properties in the UK around the £100,000 mark, but it should be noted this is a relatively low-value price in comparison to the average across the UK’s most popular cities (Birmingham, Leeds, London, Liverpool & Manchester). If you’re interested in learning more about average property prices, we recommend using the Land Registry’s House Price Index.

Ongoing costs

The most common ongoing costs of residential property are:

  • Mortgage repayments
  • Service charges
  • Ground rent
  • Management fees (if you want to be hands-off)
  • Maintenance costs

Combined, these could range from a few hundred pounds per month to a few thousand depending on the property, so they are not possible to predict without knowing the exact details. We advise investors to consider all potential ongoing costs and their likely impact on the net monthly rental income.

Section summary:

  • Residential property, such as luxury city-centre apartments, is often purchased by private landlords for buy-to-let purposes
  • These types of purchases can be mostly funded through a mortgage
  • However, the amount of money required upfront is affected by the purchase price, stamp duty, legal fees, and any additional costs like furniture.
  • As an estimate, we calculate that individuals with cash savings of over £30,000 may have the necessary funds to begin investing in residential property – although realistically you may need more than double this amount.
  • Investors should take time and care to understand all the costs involved, including mortgage repayments, plus the likely returns from rent and capital growth

How much money do I need to invest in serviced accommodation?

Serviced Accommodation is a type of property that looks and feels a lot like a residential apartment, but is marketed towards short-term lodgers, like tourists and traveling business professionals.

If managed correctly, they represent an advanced property investment strategy that allows investors to benefit from significantly higher rental yields in comparison to traditional single let models.

The key is finding residential developments that are short-term let approved. If they are, the owner can partner with a management company specialising in short-term let management. They will advertise the property on websites such as Airbnb, Booking.com, and others. Renters will be charged a premium to stay.

Whilst the occupancy rate over a year will be lower, due to the nightly rate being higher, the overall cash flow (and therefore rental yield) will increase.

Such developments are quite hard to come by direct from the developer, but the pricing structure is largely similar to that of traditional residential property as purchases can be financed with mortgages, although it’s important to inform the mortgage provider or find a specialist provider.

In short, the amount of money required upfront to invest in serviced accommodation is the sum of:

  • 25% deposit (usually, not always)
  • Stamp Duty Land Tax
  • Legal Fees
  • Any extras, such as furniture

As these factors mirror residential property, we recommend referring back to the table in the section above for more information.

Section summary:

  • Serviced accommodation is an alternative form of high-quality, short-term letting for tourists, business professionals, and more.
  • Investing in this type of property is practically the same as investing in traditional residential property
  • Purchases can be financed with a mortgage, meaning a lower initial cost upfront but higher ongoing costs compared to other types of properties

How much money do I need to invest in student accommodation?

With student numbers on the rise in University cities across the UK, there is a huge demand for accommodation.

The UK’s stock of traditional student accommodation provided by Universities to students, named ‘Halls of Residence’ (or ‘Halls’ for short), simply does not have the capacity to fulfill demand. Furthermore, many students are after high-end, modern, and well-located accommodation – a far cry from the run-down, damp squibs you may associate with student housing.

In short, this means many students will require alternative accommodation provided by new developments from the private sector.

Investors can purchase properties in these developments with the intention of renting it out to students. Student property investment is quickly becoming one of the most popular options for buyers.

Student accommodation

Upfront costs

Usually, student properties cannot be purchased using a mortgage, but they do generally come at a lower price than residential properties. Often, they’re below the £125,000 threshold for Stamp Duty Land Tax. You will still need to pay legal fees, however.

So, to invest in student property you will require 100% of the purchase price in cash upfront, plus money for legal fees (which is always around £1,000 on student accommodation) and a little extra to act as a buffer. The table below shows some estimates based on typical student property values.

Purchase Price Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£60,000 £0 £1,000 £2,000 £62,500
£80,000 £0 £1,000 £2,000 £82,500
£100,000 £0 £1,000 £2,000 £102,600
£120,000 £0 £1,000 £2,000 £122,700

For reference, the typical value of student properties is usually between £60,000 and £80,000. Most of our active student developments are within this range.

One thing to note on student property is that although mortgages are a no-go, developers will often offer payment plans for investors buying off-plan. Off-plan means before the development is complete, i.e. the accommodation is still being built. Almost all student developments sell out off-plan, meaning investors can snag a property at a lower initial cost using a payment plan. Payment plans usually require a deposit of 25-50% on exchange, so if we use the upper end of this range (50%), we can produce another table to reflect these costs.

Purchase Price Payment Plan Deposit (50%) Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£60,000 £30,000 £0 £1,000 £2,000 £33,000
£80,000 £40,000 £0 £1,000 £2,000 £43,000
£100,000 £50,000 £0 £1,000 £2,000 £53,000
£120,000 £60,000 £0 £1,000 £2,000 £63,000

Finally, whilst student property can have a higher entry price compared to residential property it does offer a higher rental yield; average yields are between 8-10% whereas for a residential property in a city like Manchester the average yield is around 5%.

Ongoing costs

With student property, there is typically a fixed rental assurance period provided by the developers – during which all ongoing costs are covered. These periods can last a number of years, and it is only after this fixed agreement ends that a student property investor will need to consider ongoing costs.

When this time comes, the ongoing costs are similar to residential property, although do not include any mortgage repayments. This includes:

  • Service charges
  • Ground rent
  • Management fees (if you want to be hands-off)
  • Maintenance costs

Section summary:

  • Student property is in high demand and offers exceptionally high rental yields compared to other asset classes
  • We estimate individuals with approximately £60,000 – £80,000 in cash will be able to invest in student property

To conclude

From working through the intricacies of each property type, it’s clear the amount of money a person needs in order to invest in property can change dramatically.

But at the same time, each type of property has its own advantages and disadvantages.

As such, any potential investor will need to weigh up what they want to achieve from property investment alongside their available capital (i.e. how much money they have) before making a decision.

This is something we can help you with. We have years of experience in guiding new and experienced investors through the UK property market. If you’d like a free chat to learn more and ask a few questions, please get in touch.

Post COVID-19 Market Projection
CategoriesInvestor Advice

What Will Happen to the UK Property Market After Covid-19?

Post COVID-19 Property Market Video Presentation

A quick run-through of our forecast for the UK property market presented by one of our Directors, Tobi. Making use of recent industry reports, market data and what’s happened internationally, Tobi gives an insight into the impact and likely future effect of COVID-19 through his property market prediction.

Click Here To Watch

The 18 Year Property Cycle

In the presentation Tobi refers to the 18 Year Property Cycle, you can see the article he was referring to here. Tobi explains how once you grasp this, it will become an essential tool for buying and selling at the right time. As a property investor (and if you’re in property in general) this is one of the most important things you should learn.

So how do you profit from the property cycle?

  • Do not panic. Being knowledgeable and recognising what is happening in the market will help.
  • Don’t put yourself into a position where you would be forced to sell at the wrong time e.g. over-leveraging.
  • Don’t buy and overpay for property at the peak of the ‘explosive’ phase.
  • If you pick the right points of the cycle, you can offload properties when everyone is buying and cash in.
  • Cashing in can generate a healthy ‘war chest’ of money ready for when the next crash happens. Meaning you will be ready to pick up great deals. “Be fearful when others are greedy and greedy when others are fearful” – Warren Buffett.

So watch the presentation and review the article on the property cycle and you should be better armed to make investment decisions.

If you found this property market prediction helpful and you’re looking to capitalise on the current property investment environment and secure exclusive incentives, then please get in touch using the details below to discuss your objectives and our opportunities. We charge no fees to investors.

Email: [email protected]

Tel: +44(0)203 627 3987

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