Getting a great return on your property
Over the last few months, I’ve received a number of serious enquiries from overseas clients who are looking to buy a property in the UK.
With the pound dropping in value, Britain has become an attractive proposition for would-be investors. With residential rental values increasing, too, there are many opportunities to invest, whether you’re an overseas or UK buyer.
The types of investment buyers I conduct property searches for usually fall into the following categories:
The buy-to-let landlord
Typically, landlords with just one investment property.
University town investors
High tuition fees for students mean that parents are increasingly looking to property to provide them with both a return on their investment whilst simultaneously providing their children with accommodation during their 3 or 4 years at university.
Those who just want to supplement their income
Holiday let cottages in the Cotswolds, the newly retired, or those who’ve recently inherited some money – rather than earning little or no interest in savings accounts, the right property investment can provide a greater return.
These are all reasons why people look to property in order to generate a bit of additional income. It is quite tricky to give definite figures of an expected return – it can be around 4% or as high as 8%, depending on the risk you want to take, the location and type of property.
You do need to watch out for potential pitfalls, though. Before you make the leap, consider the following:
1. Get the right financial advice
Taxation can be complicated and it’s worth talking to an expert. If you’re taking out a buy-to-let mortgage, banks traditionally used to look for the rent to cover 125% of the monthly loan figure but they’re under pressure to raise this to possibly 145% or above.
2. What’s your target market?
Are you looking to receive your rental income from the ‘classic’ student flat or terraced house? Or are you aiming at the more expensive, but far more particular corporate market?
3. Will you manage the property yourself?
It does depend on where the investment property you buy is in relation to where you live. Do you want to have to deal with leaking taps and faulty showers, or if you’re in the holiday let market, with weekly changes of linen? Consider the hassle value of this versus the money outlay for having an agent manage the property for you.
4. Where do you want to buy?
Look where the rental market is performing best. Metropolitan areas such as Manchester, Liverpool and Reading are providing very good returns on those investing in the corporate or student market.
5. Supply and demand
The UK currently has a critical shortage of properties to rent. There are many economic uncertainties but it’s highly unlikely that the demand for rental properties in the medium to long term will decrease. Consider this: the average student pays £27,000 in tuition fees over a 3-year-period whilst £66,000 has been the average price rise of a property in a university town over the same period of time. So historically the capital growth people have received in these locations far outweighs the cost of tuition – a ‘no brainer’, perhaps if values continue to grow?
Make sure you are also aware of the financial implications of taking on an investment property:
• The change in mortgage interest tax relief, phased in from April 2017
• Extra 3% stamp duty on top of the usual rate
• Capital gains tax when you decide to sell
• Make sure you are thinking of the investment in the long term (5 years and more), rather than a quick-fix source of income
Rightmove report that enquiries from Buy to Let investors in September was 30% up on the numbers in May and with the additional enquiries from overseas with the softening pound it looks as if this will remain an active part of the UK property market for the foreseeable future!
Good luck in your property search!