It is fair to say that no investment comes without risk. Each year, both first time and current landlords question whether it is the right time to grow their portfolios. Whilst the landscape is shifting, we believe there are still handsome returns to be made, especially if you are looking for a long-term investment.
Here are just a few reasons why it makes great sense to invest in a buy-to-let right now;
Reduced rental stock will benefit new investors
Over the past few years there have been landlords exiting the market, cashing in on the healthy appreciation in value of their properties.
This has caused a shrinking of privately let stock; beneficial to those who remain landlords within the private rental market. There has been an extraordinary surge in demand, yet only a 1% growth in private housing since 2016*, so it is not unusual to have over 20 prospective tenants competing for each quality rental.
This surge in demand is not likely to be reduced any time soon. Quite the opposite. According to the Zoopla Market Report 2023, an influx of over 1.18 million people immigrated or moved to study in the UK during 2022. The impact on rental demand can only be described as a perpetual boom, spiking 250% above the 5-year average*.
Additionally, mortgages are becoming harder to secure and first time buyers are struggling to get onto the housing ladder. As such, the returns on a buy-to-let investment are more secure than ever. It can’t be guaranteed, but in this market you are unlikely to have any void periods (months without tenants) and this is likely to continue for some time, with rents rising as a parallel.
Buy for a good price
When property price growth begins to slow, it is expected for some buyers to get jitters. Whilst recent news stated the wider economy may avoid a recession, there remains a level of uncertainty. Positively, this can enable investors to snap up a property for less than its ‘true’ market value from motivated sellers requiring a speedy sale.
Though we feel a significant downturn is unlikely in the rental sector, several investors are choosing to offload their assets now, offering the opportunity for others to enter the market. Find a landlord selling up with tenants in situ, and you can invest in a ready-made business with a guaranteed income.
Increasing rental yields
Another consequence of the shrinking number of rentals is the steady rise in prices. To be precise, average property asking rent last year rose by 11.5% in the UK (according to Zoopla 2022). Yes, mortgage rates have been increasing, but with average rents moving in an upward trajectory, you have the ability to offset this cost.
If you are in a position to be a cash buyer, you are ideally placed to make a strong return, benefitting from regular rent increases and the security of knowing that the demand for your rental is only going to grow stronger.
Knowing how to attract the best paying tenants
In the last five years, the UK has seen a nationwide effort in tackling climate change, especially amongst the younger generation. Keeping ‘eco-friendly’ can be just as important to some tenants as any other factor, and this can come with a willingness to pay more for it.
New build homes are a reliable source for energy-efficient properties. The demise of the Government’s Help to Buy scheme last year drastically impacted the sales of new homes, causing discounts in the sector; favourable for those looking to expand their portfolios. For more information on new homes for sale, head to our new build page: https://haslams.net/buying/new-build-homes/
Property remains a good long-term investment
There is shortage of housing in this country that doesn’t seem to be easing any time soon. This is one of the key drivers of house prices that ensures that even when there is a short-term wobble, the overall direction is one of growth. If you sit on your investment for a few years, you can be confident of enjoying some decent capital gain.
Average house prices have grown more than 50% over the 10 ten years, a significant increase in value and likely higher returns that you would have seen with many other types of investments.
In summary, although we are now seeing a slowdown of property prices; the increased demand for rental property and spiralling rents could favour investors looking for a long-term strategy, however it is important to note that different properties command different returns on investment.
We would recommend talking to a reputable letting agent that can advise which properties would offer the best annual yield and potential capital appreciation. An experienced agent can also quickly get you up to speed on current and forthcoming legislation and help you avoid any costly mistakes.
Please do not hesitate to get in contact with us on 0118 960 1055 or lettings@haslams.net if you would like some advice on buying a rental property in the Reading area. Read more about our full range of lettings services at Haslams https://haslams.net/letting/let-your-property/
*Sources: Zoopla, 2023; Zoopla, 2022; Rightmove 2022