In recent times there has been a lot of press coverage surrounding Buy-To-Let investment; the truth is that it remains as relevant as ever. Over five million UK households (21% of the total) are now renting their homes and this proportion is even higher in Dorset. Due to the overall lack of housing provision and issues of affordability, more and more people are having to rely on the Private Rented Sector. Private Landlords are playing an important role by providing homes for those who are unable to purchase their own.
Whilst past performance is no guarantee of future success, there are lots of reasons and economic factors that make the case for Buy-To-Let as a very worthwhile medium to long-term investment.
10 REASONS TO CONSIDER BUY-TO-LET
Return on Capital – In Dorset, the gross return or yield can be as much as 5% for a quality property in a popular area. This should be the position from day one but of course you would expect this figure to improve with time.
Whilst Dorset generally doesn’t boast the eye catching rental yields of some other areas in the country, this is arguably because it can be considered lower risk with some of the best employment rates nationwide and because capital growth is often higher.
Capital Growth – According to The Land Registry average property prices in East Dorset rose 35% between 2012 and 2017. This is higher than the national average and is a considerable increase, especially when you are receiving a rental income as well! In 2017, the average property prices in Bournemouth were amongst the fastest growing in the country, second only to Cheltenham.
The RICS is predicting that rents will continue to rise over the coming years due to a lack of supply of rented homes and an increasing population. Many renters are sadly unable to save for a deposit to buy, especially in Dorset where the ratio between property prices and wages is greater than in other areas. Tenants therefore often have no option but to remain in rented property thereby furthering demand; Harker & Bullman frequently receive several good applications for any one property.
From the investor’s point of view, consistent demand means fewer void periods between tenancies and rising rents mean the return on the sum invested continues to grow.
Regular Income – unlike many other investments, with Buy-To-Let you will know what rent to expect each month and what’s more, this can be guaranteed (see our Platinum service).
- Security of Bricks and Mortar – many people say they feel safe investing in property because it represents more than just numbers on a balance sheet- your funds are providing a useful and tangible asset and you can even drive by and look at it!
Control – many Landlords like the feeling of being more involved with their Buy-To-Let property than if they had invested the money in Stocks and Shares.
For example, they will be able to make decisions such as improvements, the level of rent and choosing which tenants to accept. Landlords can be ‘hands on’ as much or as little as they like, undertaking work themselves or appointing a qualified ARLA Agent to do all the management for them.
Often there is an opportunity to add value – this could be a simple cosmetic makeover or new kitchen to make the property more appealing. Alternatively, works such as extensions or extra bedrooms could significantly increase the rent and further improve the Return on Investment.
Tax Relief – as a private individual, tax relief IS still available on mortgage interest payments up to the lower rate of 20 percent. This relief is not available on other types of investments. New investors may wish to consider purchasing their Buy-To-Let properties within a company as ALL mortgage interest can be used to offset income. Please ask us for more details.
Gearing – with interest rates still low, any funds just sat in the bank or building society are not working as hard as they could be. Low interest rates also mean cheaper borrowing! Many Buy-To-Let portfolios have been built using the principle of Gearing i.e. funds that would be enough to purchase one property outright could represent the deposits on (say) three properties which are purchased with the help of mortgages. Any capital growth is thus trebled.
Leverage – another unique advantage of owning property is that you can borrow against it. In other words, you may be able to release funds for a special project or rainy-day expense whilst still benefitting from any income the property generates as well as any capital appreciation.
TAKING THE LONG-TERM VIEW
No one can be sure of exactly what the property market will do. However, most people we speak to believe property prices and rents will be higher in 10 years’ time. At Harker & Bullman, we always advise investors on making a medium to long term commitment. Buy-To-Let has been very lucrative for many of our Landlords and especially those who have been happy to watch their investment grow over many years. It is worth bearing in mind that rents for the properties we manage have tended to rise regardless of any dips in the property sale market.
One thing is certain, you should make sure the numbers behind your investment stack up and it provides a return from day one. That way if there are any slight changes in the market or in interest rates you are not leaving yourself unnecessarily exposed.
INSTRUCTING THE RIGHT AGENT
There are lots of different reasons why people invest in Buy-To-Let property such as wanting a regular income, an eventual pension fund or an asset to pass to their children but regardless of your motivations, one thing is certain- instructing the right, ARLA Regulated Letting Agent will maximise your success.
At Harker & Bullman we are always happy to talk to current and potential Buy-To-Let Landlords, answer questions and provide rental estimates on properties you may be interested in purchasing. We can guide you through the whole process, find quality tenants, make regular visits and review the rent annually all to ensure your investment is cared for and provides the best possible return. We manage significant Buy-To-Let holdings for a number of Landlords are always happy to tailor our service to an individual’s needs.
Management packages can be negotiated for multiple property portfolios..