Building a sound property investment strategy – top five considerations
While it’s true that the uncertainty surrounding Britain’s withdrawal from the EU – paired with an impending General Election and some attention-grabbing tax reforms – has caused many people to take stock of their investment strategies, good opportunities still remain.
Especially if you continue to do your homework.
Whether you’re a seasoned investor or you want to know how to get into property for the first time, having a robust strategy that takes the current (and likely future) conditions of the market into consideration is the first step.
- Familiarise yourself with the latest landlord tax reforms
As mentioned, the landlord tax reforms, which came into force in April 2017, have caused a stir. Mortgage interest tax relief will be gradually scaled back to 20% in the next three years, while Capital Gains Tax on buy-to-let sales must now be paid within 30 days rather than 21 months – a huge change.
Property investors simply cannot afford to ignore these changes. How they impact your investment strategy will depend on your individual circumstances, but this guide – compiled by Seven Capital and tax specialists MHA MacIntyre Hudson – explains how you can best protect your investment
- Mapping out the hot spots
Serious investors are regularly reviewing where rental demand is highest. According to the Office for National Statistics, the UK’s rental market strengthened in the year leading up to March 2017, with the average rental yield rising by 2%.
Naturally, competition for apartments and houses in popular areas can be intense so it can pay to pinpoint up-and-coming areas that have vast potential.
In London, for example, the massive regeneration of parts of the East End for the 2012 Olympic Games opened up a new realm of property investment opportunities. Everybody could see that one coming, but the more meticulous investor will stay abreast of much smaller proposed developments in previously unfancied boroughs.
Looking ahead, in Birmingham the upcoming arrival of HS2 in 2026 will play a huge part in the ongoing regeneration of the city’s Digbeth and wider Eastside area. In fact this has already opened up investment opportunities, with a number of developments currently in planning and construction stages.
The introduction of new bars and restaurants, or improvements to local transport networks, can completely transform the perception of an area among renters.
This article by Residential Landlord details the fastest growing areas for property price increase.
- The early bird…
Off-plan property investments have become increasingly attractive in recent years.
Off-plan can offer good capital appreciation, as well as strong rental yields as it’s a new-build with the latest services, facilities, build warranties and appliance guarantees. With no agent go-between, buying direct from the developer can help to keep costs down.
While there are risks to every investment, sometimes it can pay to get in early on developments that look set to have a transformational impact on the surrounding location.
Again it’s important to do thorough research, checking the detail of any warranties and working with a trusted developer. But, in the right circumstances, there can be much to gain from securing your investment before it goes on the open market with a higher price tag.
- Stay up to date on lifestyle trends
Recognising trends that will affect the property market is a key differentiator between inexperienced investors and seasoned veterans who base their decisions on long-term thinking and an understanding of how society is evolving.
Various reports have suggested that more people are renting than ever and, while for many this is out of necessity (having been priced out of home ownership), renting is now a choice for a growing number of Britons.
This infographic published by Goldman Sachs explained the theory behind this. Millennials/young professionals are increasingly mobile and have an attitude of “access, not ownership”. Younger members of society are putting off major financial commitments for longer, valuing the flexibility that renting affords them.
The consumerisation of technology has also played into property investors’ hands. The immense popularity of Airbnb is a great case in point, with the company recently revealing that the number of business trips being booked through the platform tripled in 2016.
While it’s not easy to predict how society will continue to evolve, those who future-proof their property investment strategy stand the best chance of seeing a good return.
- Be vigilant, but don’t be deterred by short-term bumps
House prices and average rental rates fluctuate all the time and it’s easy for a sudden dip to prompt less experienced investors to reassess their strategy.
However, while it’s important to remain vigilant, it’s just as critical that property investors do not allow short-term setbacks to dictate their approach. The latest Halifax House Price Index showed that prices dropped by 0.2% in the three months to April 2017 when compared with the preceding quarter.
Looking at the figures more closely, the longer-term picture is much brighter, with house prices being 3.8% higher year-on-year. Understandably, the majority of newspapers focused on the angle that prices had fallen, which is far more eye-catching than reporting that the average property value had continued to rise steadily over the course of 12 months.
This example merely emphasises the point that serious investors need to play the medium to long game.
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