Ultimate Guide To Buy To Let: Part Four
This is part four of a four-part series, forming the Ultimate Guide to Buy to Let. Click here to read part three which looks at the benefits and costs of using an agent, as well as the tax considerations when investing in a buy to let property.
Do I want Capital Growth? Or Good Rental Returns?
This is a question many investors will be asking themselves when considering how best to invest their capital. In an ideal world you would be able to see your investment provide you with both. It would bring you a steady income in the short term, but also increase in value over time. It is perfectly possible to find properties like these but it is not easy.
Both of these options do come with some disadvantages to consider. Capital growth can be affected by a downturn in the economy that affects property prices and interest rates. New government legislation for private landlords is also affecting rental yields negatively in some areas.
Due to the current economy, many young first time buyers are being pushed into the rental market meaning there is no shortage of tenants looking for properties. This lowers the chance of properties being left vacant for long periods (while while still accruing mortgage payments and service charges).
As mentioned previously, the cities of The North are offering some of the best options for either type of investments. House prices are steadily rising and predicted to continue and some areas in those cities offer the highest percentage rental yields in the country.
Like most decisions in this process, a lot depends on your personal goals and expectations. Is your investment short or long term? If you’re looking to invest long term then your ultimate goal will be capital growth. Long term investments are less likely to be affected by a fluctuating market or temporary environmental factors. However if you’re only looking to invest in the short term then focus on getting good rental yields as you start to see those returns much quicker.
There are no guarantees when it comes to any type of investment, including buy-to-let. However if you get it right, regular rental income can give your finances a valuable boost and help give you long term financial security. For those interested in entering the market, here are our top tips to help get you started:
- Be sensible with how you borrow money. Always prepare for the worst while hoping for the best. You need to remember that property can lose value as well as gaining it.
- Look for an area with a high number of young professionals. They make up the biggest portion of the rental market. Areas with local investment schemes that are creating jobs and boosting the local economy are also beneficial. To help with this, use the Office Of National Statistics.
- Locations with universities and a high student population are also favourable. You have a guaranteed influx of new students coming to the area every year, all looking for properties to rent.
- Always make sure your property is maintained as well as it can be. Ensure all appliances are modern and in full working order. If you have suitable spare rooms, consider turning them into other bedrooms. This can give a boost to your earnings.
- If buying further afield it is always advisable to employ the services of a lettings agent. This is especially important if you don’t have much spare time and there are a lot of unfamiliar regulations to contend with.
- Be friendly and approachable to your tenants. If they have a good experience they are more likely to fulfil their responsibilities and hopefully extend their contract, keeping your property occupied and generating rental income.
- Make sure to obtain the best insurance for your personal requirements. Also ensure that you keep records of everything. This will help you stay on top of things like collecting rent, mortgage payment and any fees that you incur. Keeping meticulous records will help you with financial forecasts and also calculating tax.
- Always seek professional advice. Too much knowledge is never a bad thing, so make enquiries with lettings agents and tax advisors. A little bit of effort in doing your homework now can save a lot of money in the long run.
Analysis Of The Housing Market
House prices are still rising throughout the UK, although at a slower rate than in 2017. It is expected that we will continue to see the biggest increases in areas outside London.
Many people are still concerned following the post-Brexit financial forecast, however the facts of the matter are that the housing market seems to be more stable than the worst of the predictions showed. It is always worth remembering that despite a potentially turbulent economy, people will always need somewhere to live. Combine this fact with certain areas showing that housing is in low supply and you can’t deny that there will always be great investment opportunities for the conscientious investor.
The areas showing the most promise continue to be in the north of the country. With news of the government’s Northern Powerhouse Agenda, local investment is pouring into the large Northern cities, creating a thriving economy. Local investment means more jobs, which in turn leads to high numbers of young professionals looking for new opportunities.
With many great universities in The North, we will continue to see a huge influx of students, many of whom will choose to stay in the area thanks to the aforementioned increases in employment opportunities. Seeing where the government has shown confidence in, is something that all investors, including those looking for buy-to-let properties, need to take advantage of.
Property Hotspots for 2018
As previously mentioned, many of the top locations for people looking for a buy-to-let investment are in the north of England. Liverpool, Sheffield, Leeds and the surrounding areas continue to offer great rental yields while having property prices far lower than their southern counterparts.
Since Liverpool was announced Europe’s Centre For Culture in 2008 it has seen billions worth of investment, making it a vibrant and thriving community, brimming with opportunities. Leeds is another successful city, boasting the largest regional economy outside of London and the South East with a GVA of £60.5 billion.
Due to rising house prices, young professionals are struggling to get on the residential property ladder. This is leading to a boost in the rental market which looks to continue for the foreseeable future. As well as the northern cities already mentioned there are others to consider such as Gateshead, Manchester, Huddersfield and Derby.
Something that unites all these northern cities is an abundance of universities. This means plenty of students looking for somewhere to rent. Many students favour purpose built accommodation these days, including wealthy, foreign students. With plenty of high quality student accommodation available in these northern areas, you can be sure of a sound investment with a steady stream of potential tenants. By using the services of Aspen Woolf, all the potential stresses of student letting can be taken care of your behalf. This leaves you to relax and enjoy a boost to your finances, with rental yields to the tune of up to 13%.
Stamp Duty Case Study
|Average House Price||£165,838.00||£692,660.00|
|Stamp Duty Payable||£8291.90 (5%)||£55,412.80 (8%)|
|Total Cost Of Purchase||£174,129.90||£748,072.80|
|By investing in Liverpool you can save an average of £47,120.90 in stamp duty fees compared to London with an overall saving of £573,942.90|