By Louise Misiewicz
Are you making money from your property portfolio?
Wondering how you can increase your property business?
This is the third part in another one of our popular property blog serialisations, looking at how to make money from property investment – last week’s Part Two can be viewed here.
Having looked at some of the essential Dos and Don’ts of the property investment business last week, this week I’ll be looking at some of the reasons why smart property investors will be staying firmly focused on making money from their property portfolios for many years to come, as well as the ever-popular options presented by investing in bricks and mortar.
Why is property investment such a popular business option?
There are a few simple but important reasons why the property investment sector is continuing to enjoy profitable increases for many of my investment clients, and these include:
The rise of build-to-rent investment and how to profit from it: Build-to-rent is nothing new in the UK, in fact, housing associations and local authorities – as they used to be called – have been building homes with subsidised rents across the country for decades.
But a sustained period of low interest rates saw significant financial institutions looking to explore ways of generating a better return without materially increasing their risk factors involved in investing.
Up until now there hasn’t been an obvious medium for cash-rich oganisations but no expertise in the property market to proceed, but it’s fair to say that is now changing.
For private investors though the only practical way of investing in this small but fast-growing part of the property market is to invest in the companies that are responsible for construction.
Many of my property investor clients have been wary in the past of buying shares in a house builder, partly because their performance is cyclical but also because current property valuations can at times look unpredictable at times if using conventional valuation metrics.
It’s worth remembering though that in the build-to-rent market the financial risk is mostly taken by the investor, not the builder. My team of property tax specialists can, of course, advise you further on this.
The builder will usually identify a site, gain the relevant planning consent, and construct the build-to-rent properties. In some cases, they may also offer management services after the tenants are installed.
However, the process is forward-funded by the property investor, which means that the builder has no funds invested, and therefore has more money to use elsewhere, thus improving their return on capital.
If you’re unsure about the value of investing in build-to-rent, please contact me and my team today.
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Investing in residential property – the ongoing case for buy-to-let: This is another factor that is relevant for my property investor clients to consider: the simple fact that the buy-to-let sector continues to present a solid case for investment.
Buy-to-let remains a hot topic for investor clients of mine, despite a series of smash-and-grab type taxation measures and legislative introductions by the government in the last 18 months.
There may have been some holistic reasoning, based on the assumption that provoke buy-to-let landlords to sell properties would make more properties available for the long list of potential buyers.
The reality, however, is that many people can afford to pay the rent on a property they occupy, but cannot afford to buy it, due to the consistent rises in house property prices in the UK over the last decade.
There are more than five million private rented properties in the UK, and this number is set to increase, because there are more people looking for somewhere to live, and secondly, despite the sweeteners introduced by the government, many young people are not prepared (or are financially unable) to raise the finances required to buy a property outright in the UK.
For my buy-to-let landlord clients there are incentives that will help reduce the increasing tax burden.
Increased demand will help to underpin rents, and this will be advantageous for those property investors who are not stuck with a mortgage, and who have no intention of buying another property – therefore missing the tax rises introduced by the government in recent months.
The other supporting factor for the buy-to-let property market is, I believe, a lack of adequate supply of existing and new-build homes to buy.
The new-build market was decimated in the wake of the financial crash. And whilst large publicly-quoted companies survived, the smaller operators were nearly wiped out, and more many skilled workers such as plumbers, bricklayers and electricians leaving the property market permanently.
Whether this will be a huge problem for my property investor clients remains to be seen, but the industry is still growing well.
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I have written a number of useful articles for property investors around the key areas of buy-to-let investment and property industry growth, including:
Next week in the final part of this particular blog serialisation, I’ll look at additional elements for property investors looking to make money from property to consider, such as issues that affect property prices.
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