Property Investment

Property investment is unique for one reason.

The investor benefits 100% from any capital growth, even when the residential investment property is financed using a buy to let mortgage.

The investor gets a "double return" on the invested capital. In addition to the capital growth, people are willing to pay to live in your investment property, which covers costs of ownership and contributes to your income. (Over the last 30 years, property values have doubled every 7-10 years and rental income has also doubled every 9 - 12 years.

Property investment is extremely tax efficient - rental income is also offset against the investment property loan interest, as are most costs in maintaining and running the investment property, before tax is assessed

 The investment property owner has the opportunity regularly to extract cash via equity release from the investment property when the capital value has grown.

Over the last 8 years, property has increased in value by an average of 163%.


Data Courtesy of Nationwide

The vast majority of wealthy people that we have dealt with over the years have made their fortunes from property investment. Acquiring buy to let property, receiving an income and then selling it for a large profit when the market is right is commonplace with speculators and property investment in general. There are also large numbers of much longer term investors who have sizeable portfolios of buy to let property, in order to provide them with a decent pension by means of the rental income. One of the best ways to maximise the potential of a property portfolio is by using someone elses money -a buy to let mortgage- and an investor can also expand his investment property ownership by using a process called gearing. Buy to let property is one of the few investments where the portfolio owner can receive a double return, income in the form of rental yield plus long-term capital growth.

Property values in the UK have risen by an average of 8.5% per year since 1974. The long-term property investor can expect to see this continue, because throughout the UK, there is a shortage of property. This is due partly to the decreasing number of new homes being built and the fact that people are now living much longer.

The investment property market has also experienced a steady increase in the popularity of renting as it has now become much more sociably acceptable. Renting also provides a convenient alternative to buying and for some, it can be their only option. The increase in the number of prospective tenants is due to several factors, some of which are listed below:

Job mobility and job insecurity
Short term work contracts
Couples living together before marriage
Changes in perception - it's OK to rent - which is aligning with what is normal in Europe
Less people per household
Higher divorce rate
1st time buyers finding it difficult to get on the property ladder
Improved legal protection for landlords since the 1988 & 1996 Housing Acts
More flexible and competitive financing for property investment is now available

A Brief Insight into the UK Residential Market

The key to success is buying the right investment property in the right area. Investing in the South of England has not been as rewarding in recent years, principally because the properties in certain areas have become over-valued (caused by lots of people paying over the odds for property) and as a result, the rents have become disproportionately low. This has in turn created a speculative market with people buying and selling for relatively quick capital gain. Capital increases are to be welcomed, but if the rises are massive and sudden, the downside (as there always is) means there will be a fall in prices or at best a slowing down in the market. There are a lot of very high quality empty properties due to over speculation and in some cases, tenants are virtually nominating the rent they want to pay! Whenever prices escalate, it can result in the buy to let property leaving the rental market for the private sector. The landlord sells up because of the attraction of him/her being able to realise the capital growth and "cash in." The yield deteriorates for a potential landlord because of the increased purchase price, and instead of being bought as another property investment, it goes to an owner/occupier. Of course, a landlord who had bought at the right time, getting a decent yield (over 7% in our estimation) and stays as a landlord will continue to do well, and have a decent income, especially as the rental property income increases over time (his yield will increase because his initial purchase price is a constant). In the case of new property investment, certain parts of the country are questionable regions. Capital growth has stuttered to a standstill at the time of writing because properties have reached the maximum value that the market will stand. Buying an investment property for say £150000 to rent out for even £150 per week only gives a gross return of around 5%, and may only have a small chance of decent capital growth. Too risky at the moment.

In the North of England, there are many opportunities for property investment. Historically, there is a strong rental culture and tenants tend to remain in the buy to let property for longer. This is much better for landlords as there will be fewer void periods, thereby maximising your rental income. The investment property in the North also tends to give better value, being much cheaper than like-for-like property in the the South. Nationally, there are fewer people per household every year (social trends, divorce, people marrying later in life) and because the population is also increasing, this is raising the demand for suitable buy to let property. There is plenty of scope for capital growth as the property prices in the North of England are generally lower than in the South.
This gap is diminishing, as the North/South divide narrows.

The other reason for buying investment property in the North is that rents have been fairly static in the last two years, but they are now increasing. (This is the norm, rents always take a while to catch up after capital growth.)

The fact is that property in the North has not experienced the rapid capital growth of the market in the South of England. Neither has it suffered the collapses and the degree of negative equity that property in the South underwent in the early 1990's. In my region the market (apart from very expensive properties) just slowed a little. In my experience, the property in my region has had measured, progressive growth. I personally put this down to the fact that there is less speculation in the market, and many people purchase property for a "home" rather than an impersonal capital asset that they might trade.

Buy to let property

 - some basic rules for property investment.

The success of property investment boils down to a few very simple rules, some of which are not observed by investors who get caught up in irrelevant and sometimes emotional rationale.

1) The profitability of an investment property is primarily in what you pay for it. We will ensure you get your buy to let property for a good price.

2) The yield is only as good as the company that manages your properties. There are as many excellent management companies as poor ones. We will introduce you to tried and tested, established management organisations.

3) If refurbishing, don't overspend. Plain neutral decor, adequate facilities, pleasant living conditions etc are all a tenant expects. Obviously, if you are investing in the top end of the market, a different approach is needed. We will advise on the correct approach to ensure your investment property is attractive to a tenant.

4) Keep reminding yourself, the whole object of the exercise is to make a profit. Make all of your decisions with a calculator!! Do not get emotionally involved with the property. Too many people think once they have bought one buy to let property, the next stop is millionaire alley. Sorry to disappoint you, but it takes hard work and endeavour to succeed at property investment, as with anything else. We will keep your feet on the ground and work with you by injecting our experience and skills to make the venture as successful as possible.

5) Make sure you are getting involved for the medium to long term to maximise your potential returns. I have seen so many people sell their property at the wrong time just because there has been uplift in capital values. Only to find there was even more after they had sold. Or investors have sold because they selected poor management and experienced a couple of void periods. Or they sell when there are rumours of interest rate increases, and other everyday rumours that creep out of the negative media and from the doom-mongers. Property investment, especially buy to let property, is best viewed as a medium to long term prospect.

The fact is that property in the UK has increased by an average of 8.5% per year for many years. That's taking into account the good and bad times! When you add your rental income to this, where else except for property investment, can you obtain this type of solid, reliable and consistent return?