3 Benefits of Buy to Let Investment
Residential rents have proved to be resilient in a downturn
Some people prefer investments that are more tangible than perhaps stocks and shares, especially when we are faced with a global pandemic and overcoming economic difficulties. Despite the unemployment rate rising, the UK rental market is thriving and any dips post-COVID-19 will be far less significant than house price losses, with rent prices set to pick up again over the next few years.
As an investor, if you’re looking for stable yields and long-term growth with an asset you can leverage, then buy to let is an excellent investment for you, as there is enough evidence to prove that buy to let can still provide consistent returns over a long period of time, as well as two forms of income — rental yields and capital growth, from one investment.
In addition to solid returns, buy to let investment couldn’t be easier as you’re able to use a rental management company to manage the property for you, allowing you to sit back and reap the rewards. In this article, we’ve highlighted some of the key benefits of a buy to let investment, so if you’re looking to secure a stable investment in order to survive the recession, keep reading to find out more.
Tip — if you’re wondering how to you can make money from buy to let investments or you need to go over your buy to let property knowledge, then start by looking for some detailed guides. Property investment companies usually offer tips and advice on buy to let property and how you can get started with your investment journey.
1. Buy to Let Offers Two Types of Returns
One of the greatest benefits of being a buy to let investor is that you can earn an income in two different ways. Firstly through the rent paid by tenants, and secondly, through capital growth, providing the property is in a prime location. So, as UK rental yields grow and property prices rise, it’s no wonder savvy investors are looking to put their capital in an asset as secure as bricks and mortar.
Rental Yields
For buy to let landlords, rent should be the key focus, so when looking for properties it is important to compare rental yields, which is the annual rent received as a percentage of the purchase price. In 2020, we have seen some phenomenal yields of up to 10% in some areas of England. Rental income continues to grow across regional cities in the north like Manchester and Liverpool, providing higher than normal rental yields to property investors.
Tip — be careful when calculating the rental yield, if you’re buying with a mortgage, as most people do, note that the rent to property price yield isn’t the return you receive. To calculate your annual return on investment, take your annual mortgage cost from your annual rent and work this out as a percentage of the total deposit you put down.
Capital Growth
Capital growth or capital appreciation provides a second way to earn money from a buy to let investment, but this is determined by natural market growth which can affect the overall value of a property. Typically this does better over a long period of time, so many investors are turning to off-plan developments as capital growth takes place during the build and after completion, achieving a remarkable increase in value during the construction period, and once the property is complete.
2. The UK Rental Market is Thriving
UK estate agents Savills, prior to the pandemic, had predicted income growth of around 3% per year, from 2020 to 2024, seeing an overall rental growth of 15.4%. Since the unexpected crisis hit, there will be a slight decrease in the total rental growth figure due to unemployment, but Savills still hope for a total figure of 13.6% in the coming years.
Student Market
The UK market for student property is in high demand, with many big cities attracting thousands of students every year which has led to an increase in demand for student accommodation. Although many student tenants may look for improvements in properties post-COVID, it still appears to be a relatively lucrative market for investors as young academics look for vibrant cities with exciting prospects on offer.
Demand from Young Professionals
Young professionals are also looking for cities or urban areas with inspiring regeneration projects on the horizon, and luxury apartments and developments as a place to live. When researching areas to invest in, you may wish to start with profitable places that are attracting these sorts of tenant groups, to ensure your rental prices remain high due to demand and your capital growth continues to soar.
3. Buy to Let Offers a Hands-off Investment
If you don’t fancy yourself as a landlord, but you like the sound of buy to let investment, then you could always have someone else manage the property for you. This is often favoured by first time buy to let investors, with limited experience in the market. There are a whole host of rental management companies available, ready to offer their services when it comes to dealing with tenants and rental properties and giving you a hands-off investment. So, sit back and enjoy your extra income as they do the heavy lifting for you!
