"Today, it is even more important for anyone considering investing in a buy-to-let property to do their homework. It can make the difference between a lucrative investment and a disastrous and expensive failure. Location is always a key factor, whether buying to live in or to let. Always consider market value, rental income and capital growth. Who will let and manage the property? If an agent, the cost must be factored in."
This was the penultimate paragraph of an article I wrote at the end of 2014.
In the intervening three months, the increased level of publicity regarding property as an investment has prompted me to expand on the topic:
Recent reports confirm that tenant demand continues and is outstripping supply. As a result, the buy-to-let sector remains attractive for both larger property investors and first time landlords who, during the downturn saw their savings diminish in real terms due to low interest rates, poor returns and limited options.
During 2014, buy-to-let was the fastest growing segment of the mortgage market, and as an investment option, there are many advantages.
Tax breaks are available for buy-to-let properties that are denied for private residential house purchases. In addition 'allowable expenses and allowances' permit landlords to offset interest charges on a buy-to-let mortgage against their taxable income. This makes it an even more attractive proposition for investment.
As well as reaping tax benefits and a regular income from tenants, there is the potential long-term gain from capital growth when investing in bricks and mortar – although it should be remembered that property prices can go down as well as up.
To establish a realistic 'bottom line', management, accountancy and other professional fees, void periods, maintenance costs, legislation and regulations will all need to be factored in to the equation, but the yield may still be attractive enough to entice a modern-day investor. It would be wise for any first time buy-to-let investor to consult an expert.
Some commentators predict an influx of buy-to-let investors releasing monies from their pension funds could add to the problems of first time buyers. This may put the property ladder even further out of reach for many first time buyers who currently find it extremely difficult due to high prices, lack of mortgage options and the huge deposits required, thus further supporting the strength of the lettings market for buy-to-let landlords.
Generally, buy-to-let and first time buyer properties are one and the same. In due course, first time buyers move up the property ladder. Landlord investors tend to hang on to their property. The inevitable result will be a bottleneck, reducing options for first time buyers even more than at present.
Currently properties in good areas, with potential to provide above average rents, are in short supply. This has a knock-on effect and the level of investment required may affect long-term gains. Add to that a soon to be introduced EU directive that, according to David Cox, MD of the Association of Residential Letting Agents (ARLA) "...will require lenders to tighten affordability levels on buy-to-let loans, making it harder for amateur landlords to obtain a mortgage".
Urban Sales & Lettings Ltd has conducted a study revealing pre-election nerves have slowed investment in the private rental sector. This, they suggest, is due to uncertainty around Labour's intention to introduce a rent cap and longer fixed term tenancies, and a worry that property prices would fall if they were in government.
On a more positive note, Knight Frank and accommodationforstudents research reveals that student property is outperforming all investments.
My colleague and associate director Duncan Reeves, who is head of residential and student lettings in our Canterbury office says students are more demanding than ever. No longer will six to a bathroom suffice. Students, and their parents, are not prepared to compromise, so anyone considering an investment in this market would be wise to explore top end, purpose built property.
As head of a successful and professional student lettings organisations, Duncan's experience is that the first properties to let are those sensibly priced, located close to the universities, decorated to a high standard with good quality furniture, modern appliances, wi-fi and en-suite facilities. Less popular are houses in multiple occupation, that were once so popular.
To summarise, prospective property investors must do their homework: consider whether student or professional tenants are the best option; location is paramount; factor in all outgoings against income and then allow a sensible contingency; remember property will show greatest gains over the long-term; and finally, take advice from professionals who are experienced in the field.
Director and head of Residential Lettings and Management