Yields will de­cline but gains are good for landlords

The buy-to-let-mar­ket is bounc­ing back but in­vestors should look to the long term and not ex­pect a bar­gain, says Gra­ham Bates.

Yorkshire Post - Property - - PROPERTY -

IF you are a prop­erty in­vestor, it has been a long six years. If you bought your prop­erty in­vest­ment at the peak of the mar­ket, it’s been an es­pe­cially tough time. But even for any­one who has been in­vest­ing over the long term, the last few years have been no fun at all.

Few in­vestors would dis­agree that the best part of buy­ing an as­set is see­ing its value rise over time. When the value is stag­nant, or worse, fall­ing, it does make you ques­tion the orig­i­nal de­ci­sion to part with your hard-earned cash and per­haps, on oc­ca­sion, even your san­ity.

How­ever, as we are con­tin­u­ally re­minded, prop­erty is not a short-term in­vest­ment ve­hi­cle, it is not a quick road to riches or to fast fi­nan­cial free­dom. What­ever you may read, any se­ri­ous prop­erty in­vestor will tell you the same thing: suc­cess­ful prop­erty in­vest­ing re­quires knowl­edge and time. I have been in­vest­ing in res­i­den­tial prop­erty for over 20 years (long be­fore the buy-to-let boom) and in that time, I have ex­pe­ri­enced pe­ri­ods of ul­tra­high in­ter­est rates, rates at rock bot­tom, ris­ing and fall­ing val­ues and the de­vel­op­ment of city cen­tre liv­ing as well as watch­ing the en­tire pri­vate rental sec­tor change be­yond all recog­ni­tion.

De­spite some­times dif­fi­cult pe­ri­ods, I re­main a to­tal ad­vo­cate for in­vest­ing in bricks and mor­tar. Show me a bet­ter long-term in­vest­ment? Tim­ing the prop­erty mar­ket is of course no­to­ri­ously dif­fi­cult. You can only know the top and bot­tom of a mar­ket in hind­sight and no­body has a crys­tal ball, which is sim­ply another rea­son why it’s im­por­tant to view res­i­den­tial prop­erty in­vest­ment as be­ing for the long term (it means you can ride out the troughs).

The one rule you must fol­low, how­ever, is to en­sure that your rental in­come com­fort­ably ex­ceeds the cost of any bor­row­ing and other over­heads as­so­ci­ated with rent­ing your prop­erty. If these num­bers stack up, fluc­tu­at­ing cap­i­tal val­ues are of less con­cern and if val­ues are fall­ing, you can wait for the mar­ket to im­prove.

I have long been a me­dia com­men­ta­tor on prop­erty and in­vest­ment mat­ters. The York­shire Post has al­ways had a clear han­dle on what is hap­pen­ing across the prop­erty mar­ket in our re­gion but the wider na­tional press does not al­ways get it right. Leeds, for ex­am­ple, was once cited as the “empty flats cap­i­tal of the North” but those of us who have been let­ting prop­er­ties here since the start of city cen­tre de­vel­op­ment 15 years or so ago would tell you just what non­sense this re­ally was. The re­al­ity to­day, just ask any let­ting agent, is that there is sim­ply not enough qual­ity res­i­den­tial prop­erty in the city cen­tre to sat­isfy the huge de­mand that ex­ists for pri­vately rented prop­erty.

It goes with­out say­ing that you need to do your re­search. Make sure that you buy in the right lo­ca­tion within the right de­vel­op­ment as well as en­sur­ing that your prop­erty is well main­tained and pre­sented in a good light. With that said, rental de­mand is an is­sue that few landlords need to be con­cerned about. So given that strong ten­ant de­mand ex­ists, where does it seem that cap­i­tal val­ues are now head­ing?

I be­lieve we are now see­ing clear ev­i­dence that the value of in­vest­ment prop­erty is in­creas­ing in value, a trend I would ex­pect to con­tinue over the medium term and prob­a­bly for the next 10 years. I have no crys­tal ball, re­mem­ber. Prop­er­ties, in­clud­ing city cen­tre apartments, are sell­ing to­day on gross yields of eight per cent per an­num but don’t ex­pect this to last. There are al­ready ex­am­ples of in­vestors buy­ing on in­come yields as low as six per cent and I don’t be­lieve it will be long be­fore this is quite the norm. Just a cou­ple of years ago in­vestors ex­pected dou­bledigit yields and to­day these are al­most im­pos­si­ble to achieve for qual­ity prop­erty as­sets. So broadly speaking, we are in a ris­ing mar­ket and one rea­son for this is that first-time prop­erty in­vestors are once again com­ing into the mar­ket. This is good news – un­less of course you are a bar­gain hunter.

The av­er­age buy-to-let loan ap­pli­ca­tion in the UK is for £149,000, ac­cord­ing to the lat­est re­search from the Na­tional Landlords As­so­ci­a­tion (NLA). In York­shire it is around £200,000 and in York­shire it is £103,431.

The study also found that 27 per cent of landlords bor­row be­tween £100,000 and £149,999; thir­teen per cent bor­row be­tween £150,000 and £199,999; five per cent bor­row be­tween £200,000 and £249,999; and 12 per cent of landlords bor­row over £250,000.

NLA chair Carolyn Up­hill says: “While these find­ings in­di­cate that the cur­rent mortgage fi­nance mar­ket is healthy, it shows that landlords, and their fi­nance needs, are far from ho­moge­nous.

“Like any small en­ter­prise, pri­vate-landlords are al­ways look­ing for an op­por­tu­nity to in­vest and this is only pos­si­ble if their in­di­vid­ual cir­cum­stances are taken into ac­count by lenders. They need ac­cess to tai­lored, af­ford­able fi­nance which makes in­vest­ment vi­able.

GROW­ING IN­TER­EST: Old Low Moor Farm in­cludes a farm­house plus a one-bed­room cot­tage and barn with plan­ning per­mis­sion to con­vert. The prop­erty comes with 12 acres of land in­clud­ing a ten­nis court and gar­den as well fur­ther build­ings such as a trac­tor shed and barn with ex­ten­sive stor­age fa­cil­i­ties.

POS­I­TIVE SIGNS: The buy-to-let mar­ket is on the rise, but the suc­cess­ful in­vestor is in it for the long-term and does care­ful re­search be­fore buy­ing.

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