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There are countless advantages of investing in the buy-to-let sector. Whether you are taking your first steps in the world of buy-to-let investing, or you are a seasoned pro looking to expand your portfolio. We are here to provide you with some essential knowledge when it comes to investing in the buy-to-let sector.
You may be debating whether buy-to-let investing is right for you. Especially given the unpredictable nature of the pandemic, alongside changes to stamp duty, and the impact of Brexit. Understandably, it can feel like a minefield, but buy-to-let investment is a fantastic source of reliable income, and here is why:
A buy-to-let investment is where a person or a company purchases residential property to rent out to tenants. With UK house prices on the rise, renting a property can be a great alternative.
Found close to city centres, buy-to-let properties are often more affordable and within walking distance to work. They are usually occupied as part of a flat or house share, highly favoured by students and young professionals.
Rental Income vs Capital Growth
One of the most appealing aspects of being a buy-to-let investor is that you can generate revenue in two ways. Firstly, is the income that you can generate from renting out the property. This income can vary depending on where the property is situated, and the build and design of the property itself. Currently, rental values are soaring in places with increased tenant demand. People are beginning to seek larger spaces at more affordable prices, meaning there is an increased demand in commuter towns. As more people adapt to work from home, the need for steep priced, city centre accommodation is decreasing. In property hotspots such as London, we expect to see a fall in rent. In neighbouring towns, on the other hand, we are seeing trends reverse, as commuter areas are becoming much more appealing.
Secondly, you can generate income via capital growth. Capital growth is the profit you make on the investment, measured by the increase in market value. Investing in new developments in up-and-coming areas can result in property values increasing in the long term. Investors tend to invest in areas expecting regeneration or newer properties in commuter towns.
Finding the perfect combination of both these factors is the first step to a successful buy-to-let investment. As well as a reliable, extra source of income, your property might see significant capital growth too.
Demand for Rental Properties
Although the property market is constantly fluctuating, there will always be a demand for rental properties. Changing work environments has caused a decline in rental prices in London. Landlords are bringing prices down, as a result of home-working, studying, and a lack of tourism. However, this means that the demand for properties outside of London is 20% higher. For more information on this ‘two-speed’ market, read our article here.
Because of the supply and demand imbalance, now is an excellent time to invest. Property prices are rising due to increased demand for rental housing. In the autumn, students will be returning to face-to-face teaching. We also predict that prospective homeowners will be remaining in the rental market for a longer period of time. Mortgage lenders are treading carefully when it comes to offering loans. With unemployment being at an all-time high, many people are having trouble with deposits and credit checks.
A Safe, Long-Term Investment
Property prices rise and fall over time. However, despite these fluctuations, the values will continue to rise in the long term. Over ten to twenty years, the price of your property will increase. In turn, this will generate a large profit once you eventually sell the property.
Any property, including buy-to-lets, can be a wise investment if properly managed and cared for. Profits from a well-managed property investment have the potential to substitute a fixed salary, allowing you more flexibility. Especially for those nearing retirement, investing in the buy-to-let sector could massively enhance your pension funds.
COVID-19 has had a great impact on the future of buy-to-let. The ability to work from home means many tenants have much more flexibility. They can consider moving out of urban areas, into areas where they can get more for their money. This has opened up a whole realm of new, property investment hotspots, especially in the north of England.
Additionally, with house prices on the rise, renting is becoming a much more feasible option. Despite the increase in the availability of mortgages with lower deposits which could make homeowning more accessible, there is still a lot of national financial uncertainty, which could limit the number of people hoping to take advantage of the scheme. Consequently, continuing to rent for a while longer.
Most importantly, we appear to be moving forward in our vaccination programme with life ever-so-surely getting back to normal. This will have a significant impact on the buy-to-let sector. We will begin to see an increase in tourism and businesses going back to normal. In turn, this will bring more life and activity back into our city centres. Although the market may not return exactly to the pre-pandemic era, it certainly looks like now is an opportunistic period to be investing in the buy-to-let sector.
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