Understanding Ready-Made Investment
For Buy-to-Let investors, the idea of investing in a ‘ready-made’, pre-tenanted property or Ready-Made Investment is a concept that’s also on the rise. Mitigating two primary landlord concerns in 2019, a ‘pre-let residential property’ (PLRP) can deliver immediate rental income, avoid initial void periods and provide a detailed payment history. According to LudlowThompson, a London-based letting agent, Buy-to-Let investors are increasingly targeting properties with an existing tenant because of the following key advantages:
- A proven history of payment from the tenants
- No initial void period and an immediate stream of rental income
- Administration work (gas safety etc) has already been completed
- Less hassle for the investor across the board
Stephen Ludlow explains: “Tenanted properties can generate high net yields because they produce rental income from day one. It is also quite unusual for established tenants to ask for expensive improvements to the property because they will normally have been dealt with before they moved in.
“The main advantage of an existing tenant is that they have shown that they pay the rent and that they pay it on time.”
While some investors will want to find their own tenants – for those that want a more ‘hands-off’ investing experience a pre-let residential property can be ideal. Much like investing in a ‘turnkey property’, a PLRP investment can suit an international investor that is interested in UK property but wants a hassle-free process.
Benefits of a Ready-Made Property Investment
As mentioned, pre-tenanted UK property removes the need to advertise for tenants, mitigating any additional initial set-up costs and ensuring no void periods at the start of the investment. This also means immediate returns while capital growth continues to build.
With 18% of landlords citing rent arrears as their primary concern according to Upad, a tenanted property also offers investors the opportunity to quickly identify a payment history and how previous tenants have cared for the property. This information can provide vital insights into the potential success of an investment, after all, a tenant that is keen to stay in the property is typically the easiest to please.
Furthermore, tenanted properties typically do not need initial furnishing, decorating or repairs, again reducing potential set-up costs, although it does mean inheriting previously agreed rental figures PCM.
According to Stephen Ludlow: “The traditional investor prefers properties with vacant possession because they figure they can achieve a higher rent by putting in new tenants. The buy-to-let market is very mature now, so there are also investors who like to pick up a tenanted property to hold for a few years with the established tenants before deciding whether to improve it or not.”
While the process of purchasing a tenanted property can be slightly more complicated than a traditional ‘Buy-to-Let’ investment, many investors are finding the benefits far outweigh the change in the purchase procedure.
How Investors Can Capitalise on a Ready-Made Investment
By determining a ‘ready-to-rent’ development in the right location and targeting the right demographic, investors can immediately take advantage of the benefits of Buy-to-Let – utilising rental income while building capital growth.
Locations that provide local transport links, resident amenities in the area and proximity to exceptional job opportunities are ideal, creating a sense of place and helping retain premium tenants while attracting new waves of demand.
It is estimated that as of 2018, the UK needed 300,000 new homes to meet the demand that is far outstripping supply. For investors, this represents an exceptional opportunity.
The Rise of Pre-Let Residential Property
Parallels can be found in the growing trend of investing in a ‘pre-let residential property’ and pre-let commercial property. According to Savills, 2018 was the ‘year of pre-let’ for London office space, with 20 pre-lets of 50,000 sq.ft or more being agreed.
This uptake is largely attributed to limited new developments on the market and a long-term belief in the location, where ‘real-estate savvy global brands’ are identifying emerging markets based on professional workforce and connectivity. We can see this in the residential markets up and down the country – lack of supply and rising demand means quality space is at a premium, creating a competitive environment.
It’s not surprising then that investors are choosing PLRP – finding quality developments that can deliver immediate returns in a competitive market is huge, vastly increasing the potential for long-term success.