Property investors must consider buy-to-let for long-term gain

Human nature has a habit of ensuring that people jump into the property market at its height when buying is at its most expensive – but investors that stay in the market will be better off in the long-run instead of following the investment herd who dip in and out of the market depending on the UK’s financial situation. Despite suggestions of a downturn in the market, property has become an affordable source of income with a genuine return on investment available 
for professional seasoned investors.

Finance is very difficult at the moment with buy-to-let mortgages, stack rates and fees changing daily, but there are plenty of available properties on the market, which can be bought for £45,000 – 75,000 if investors keep a cool head and deal with the current economic climate wisely. New builds have taken over city centre developments, meaning that confidence in the market is over-supplied, resulting in lack of liquidity and low demand for these types of properties, with some going for 60 percent of their actual value. Some housebuilders have even had 
to give up to 40 percent discounts through desperation and intense competition.

Repossessions are filling the auction rooms, but one person’s loss on not buying the right property in the first instance, is another person’s gain, as some investors have been able to pay for houses below the market value. Unfortunately, the term ‘new build’ is seen as a dirty phrase in the mortgage market as banks go running for the hills when asked to lend in these uncertain times, creating a ‘Catch 22’ situation.

Property has radically changed recently, so investors need to be looking for something different compared to five years ago, if they are preparing to buy-to-let. Affordable properties with a low capital investment required, such as two up, two down Victorian terraces, particularly in regeneration zones are still growing in value, and are ideal. Choosing the right location is also key to a sound investment property. Stay clear of city centres (unless searching in London), and look for low capital housing in safe areas that are teeming with young professionals, tourists and students, as they all maintain a consistently high demand for property. Take catchment areas, transport links, office openings, local amenities, migration, career opportunities and cities under development into consideration, as these factors attract plenty of tenants.

Hull, Mansfield, Nottinghamshire, Manchester, Leeds, Edinburgh, Brighton, Southampton, Oxford, Cambridge, Reading, Belfast and Bristol are all great places to find potential tenants and increase capital value. Note that the student market is saturated with available properties, so any investment made into a student buy-to-let must be worthy of competing with other similar properties as students are in an easy position to demand excellent standards and top notch refurbishments.

It is also important to remember that the UK is just one of the countries that you can invest in property, and not all economies grow at the same rate. Buffalo in the US for example, has a high lettings demand, so don’t necessarily put all your eggs in one UK basket if you can afford to. Investing in areas far from investor’s own homes could be deemed risky, as there may be problem issues with management, maintenance and collection of rent if a reliable and knowledgeable third party letting agent is not found. If in doubt, it is always best to seek out a specialist who offers a ‘cradle to grave’ package.

If an external company is not used, investors and potential landlords should not just rely on the internet for information. They should visit the local letting agents to look into what type of tenants the styles of properties attract and how much rent can be achieved. However, the internet is a useful research tool when searching for information on property price trends, and Government and council planning for investment in the area.

Investors should not get drawn in by marketing hype, and never get emotionally involved in a property. It is essential that at least two weeks is spent in the area personally to find out what happens each time of the day, and to understand local people’s lifestyles and any social problems. All research needs to be carried out personally – from information on the property and area, to the rental market and resale values.

A positive monthly cashflow where the rental income adequately covers the mortgage is absolutely vital. Investors must never overstretch, and they should allow a contingency budget for unforeseen costs such as maintenance, void periods, and most importantly – interest rate changes. The contingency budget will also need to fund any short-term maintenance.

So what strategy should investors adopt when purchasing buy-to-let properties? Take review of the budget and complete a financial appraisal. Assess property stock, source income from any existing portfolio of properties, because if a loss is made on one, a substantial profit needs to be made on another. Spread the risk by predicting future maintenance issues, and invest in more than one area. Finally, look for low capital investments, Government path finder schemes and run down areas considered for regeneration that all have strong rental demand and cash flow positive style properties.

As a word of caution to those investors relying on rent for some of their income, rental yields can rise and fall, so there may be periods where the property is empty and not generating any extra revenue. Therefore, it is important to seek out professional letting agents who can take out the hassle of maintaining the property, and find tenants every year for the investor. Over the next six months, the property market will get a lot worse before it gets better, since a lot is dependent on the mortgage market. However,  if investors do their research well and seek external advice from property professionals, they will be certain  to make a tidy profit in these uncertain times.

Arv Soar, director of Property Investment Portfolio
For more information, please contact:
Emma Finden-Crofts, Account Manager, BCS Public Relations
Tel: +44 (0)155 948 6901 Email: emmaf@bcspr.co.uk. 
John Machin, Junior Account Executive, BCS Public Relations
Tel: +44 (0)155 948 6901 Email: john@bcspr.co.uk or visit 
propertyinvestmentportfolio.com or call 0845 652 4343.