People often dream about becoming a property magnate, building up an empire and earning money from their investments, but for it to be a good outcome, you need to invest in the right type of property at the right time.
It may sound simple, but in reality, it can be tricky, as you need to offset all the costs involved against the projected increase in the value of the property. Working out the best time to buy is challenging, as you must keep abreast of prices. It’s all in the timing!
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Covid impact on property market
Sometimes, property prices change unexpectedly. For example, nobody could have predicted, at the onset of the Covid-19 pandemic in March 2020, how this would affect the market.
In the year ending December 2019, there was a 2.2% rise in UK house prices, with the average price being £235,000, according to official figures. However, in the year ending December 2020, prices had gone up by 8.5%, with the average price being £252,000.
Anyone who had invested in property in 2019 and early 2020 would have seen a significant return on their investment. In the year ending June 2021, there was a massive 13.1% rise in prices, with the average price going up to £265,000. According to market analysts, this was caused by the pandemic.
People were moving out of cities to rural or coastal areas because homeowners didn’t want to live where infection rates were higher. They also wanted to move to more scenic locations due to having to spend all their time at home during the lockdowns.
Other people were moving because they felt isolated due to living far away from their families, while older homeowners were taking early retirement during the pandemic and downsizing to a more picturesque location.
For other buyers, it was the opposite, as they were looking for bigger properties with more space and a garden, after families were forced to spend lockdown crammed into the house together without escape.
In July 2021, the price rise was 8%, suggesting the unprecedented demand at the height of the pandemic had slowed down slightly. The question is, if you’re planning to invest in property as a landlord, can you still make a profit if you buy now?
What should landlords consider?
Before investing in a property that you intend to rent out, there are more considerations, apart from the initial cost. It isn’t a case of buying a property, moving tenants in and watching your nest egg grow, as you will probably realise!
While you can still make money from the housing market, it’s not as easy as it was say 18 months ago, before prices surged. Today, you will need more money to get onto the property ladder. You will typically need a deposit of around 25% for a buy-to-let mortgage.
Apart from the cost of actually purchasing a property, you also need to consider what type of property and whether it will be furnished or unfurnished. For many landlords, investing in a house in multiple occupation, or HMO, feels like a safer choice, as even if one tenant doesn’t pay their rent on time, there are others to soften the blow.
If you’re planning to buy an HMO rental property, you’ll be more likely to offer it as furnished, as traditionally, they attract tenants who are looking for a cheaper option. Your property will be more desirable if it comes furnished, so they can move in without any hassle or extra outlay.
Another tried and trusted investment is a student property, as there is always a high demand for lets in this sector. While this might not have been a prudent investment in 2020, due to the lockdown affecting students who could not return to campus, it’s now a more favourable option.
Common barriers to investing in property
Buy-to-let remains an attractive option, although potential buyers often falter because of fears it won’t be profitable. Factors you need to take into account include how much stamp duty you need to pay, getting a mortgage, paying for a survey and forecasting whether the market value will go up over time.
Don’t forget your running costs including landlord insurance, mortgage interest payments and council tax if you’re responsible for this. You may also need to spend money on home improvements if you have bought a property at a cheaper price to convert it into flats. The stress can become too much for some landlords.
Advantages of buy-to-let property
For it to be a lucrative venture, you need to have an accurate business plan in place before signing on the dotted line, taking into account all of the potential expenditure. Then you need to work out whether it’s worthwhile investing.
In particular, calculate whether you can justifiably charge the rent you need to make your money back with a profit on top.
To maximise your chances of making money, the longer you own the house, the more time you have to earn money from your investment. As a landlord, ideally you need to be in it for the long haul to see your investment grow, as there aren’t any “get rich quick” schemes.
Before buying a property, carry out a few important checks, such as whether the local area has good transport links, how many schools are in the vicinity and the general level of house prices – look into whether they have risen or fallen recently.
When you see a property you like, check if there is any work to be done. If it’s a case of whipping out a paintbrush and sprucing it up, that will be more cost-effective than having to get builders or decorators in. The less you need to spend on the house at the outset, the bigger profit you will make.
How many properties does the average landlord own?
The recent Private Landlords’ Survey in the UK reveals 94% of landlords operate as private individuals and not as a larger company. On average, a landlord earns £15,000 per year before tax and other expenses.
For most landlords, the income from rental properties makes up 42% of their total income. Only 4% list buy-to-let houses as their main business. The majority of landlords (45%) own just one buy-to-let property, 38% have two to four properties and 17% own five or more rental homes.
In 2010, 78% of landlords had only one buy-to-let property. This reveals a tendency to further invest in new rental homes due to a successful first venture. The number of landlords owning five or more properties has grown from 5% since 2010.
The study revealed 59% of landlords today are aged 55 years and above, with 33% being past retirement age.
For many landlords of furnished properties, providing furniture can be one of the most costly parts of their business. This is why they use the services of a professional furniture provider, such as Let Us Furnish.
For details of how we can help you to furnish your properties, with everything from bedroom packages to sofas and chairs and electrical products, please call 01792 798839 or visit our website.