Housebuilders and estate agents have been telling us there’s never been a better time to buy. With property prices now rising, they appear to have been right, but now that the downturn has perhaps bottomed and people are starting to buy rather than rent again, is Buy to Let still a viable option in this returning market?
Property entrepreneur and director of Property Investment Portfolio, Arv Soar, assesses the opportunities in this returning market for those thinking of investing in Buy to Let properties in Nottinghamshire.
Now the sales market is returning, we’ll undoubtedly see a decline in the number of available tenants for rental properties. This doesn’t mean that Buy to Let is no longer a viable option, it simply means that investors need to be shrewder.
The current market makes investors with cash king – and they’ve been building their portfolios with bargain repossession properties purchased at auction. For first time investors it’s been less of a paradise as banks’ funding has tightened enormously and alternative funding sources such as housebuilders’ mortgage extensions, only usually offer funding to first time buyers who meet lending criteria and are looking to Buy to Occupy.
However it’s not all negative – and those looking to invest should remain optimistic as the current market is full of opportunities.
The rental market may be drying up in terms of families as they begin to invest in family homes, but student properties and those desirable for couples to share are still in demand and the depressed commercial market has led many student landlords to sell their properties to release equity for other business ventures.
As I mentioned, new homes with homebuy type scheme options only exist for Buy to Occupy, but the depressed market has led housebuilders to offer fantastic deals, which can include complete furniture packs or paid mortgage periods (subject to lender criteria) – great incentives for investors looking to get on the first rung.
Location is still key, and in an uncertain market, it’s good to go off the beaten path and look for areas that have low present values but have promise – perhaps in the form of regeneration plans, or expanding universities or hospitals or even public transport investment. All of these factors will increase capital value and create potential rental demand.
It’s essential that whatever the climate, investors don’t lose sight of the basic rules of investment. Rental yield is a key indicator when considering an investment in property. The net yield determines the anticipated return on investment an investor is likely to gain, and coupled with capital growth potential, makes the difference between a profitable investment or one which can become expensive.
It could be said that the current market is likely to guarantee capital growth – but rental yield is still imperative to a successful investment. It is for this reason that the vast majority of the properties that PIP sources are cash-flow positive. That is, without the immediate anticipated capital growth, any investment we source will produce a form of income on an ongoing basis. This cash flow is crucial to any business and this is no different for investors, especially in a downturn where access to funding can be limited.
With residential property historically rising in value over the medium to long term (5 years +) any investment in property which is not losing money in the short term is likely to flourish in to a very good one.
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