Whilst recent changes to legislation have caused a shift in investor activity, a well-selected investment can attain credible yields, which contrary to reports, are still very much achievable. Here is our insight into the positive outcomes that the recent market changes have had for investors.
Buy-to-let was long viewed as a relatively easy way to make money, and for many, presented a reliable additional source of income. Subsequent to the recent introduction of the Buy-to-let stamp duty and other legislative amendments, there has been a slowdown in investor activity. This cautious approach is certainly advocated in consideration of the given market, and has, in fact, proved rewarding for many, as the yields currently generated are quite impressive. It would be easy to stipulate a number of reasons for this outcome, but simply put, the changing market has put investors under additional pressure to select the right investment opportunity.
The general consensus here, is whilst the continual industry changes have meant Buy-to-lets may not deliver the returns they once did, the right property in the right location, can and will still make a viable investment.
Investments are ultimately about generating income, so for investors, yields are the primary indicator of your return on investment (ROI). If you’re new to the world of investment, this can sound somewhat daunting, but essentially, investing is all about strategic thinking. To put this into perspective, this is the one instance of buying a property where head must rule the heart.
Calculating yield is really simple and will prove a crucial calculation to you as a successful investor. This allows you to identify a viable investment and will provide a reliable indicator during the decision making process. There are many useful online tools available to help you calculate yield, but you can quite easily calculate this yourself using this simple formula:
In the current market, a good investment should expect to achieve a yield of around 4%. In saying this, the average yield your investment should expect to achieve will vary from area to area. As you may suspect, this is not simply because property prices vary from area to area, but is, in fact, reflective of the many variables of a good investment. When selecting your investment, it is therefore as important as ever to pay consideration of factors such as property rental demands within the area, business communities, schools and commuter access, as they will present you with an indicator of tenant demands. In doing so, over time you will notice each area has its own hot spots.
Take Farnborough for instance, this up-and-coming town runs along the M3 commuter belt and has a large area coverage with two train stations, pockets of new developments and reputable business communities. So, where do you buy? This is what your market research will allow you to identify. Your findings, coupled with the yield calculation, will allow you to identify the most profitable areas to invest in.
To present you with an example, in 2013, a two bedroom apartment bought for £189,950 generated a rental income of £996pcm, which achieves a yield of 6%. Based on these stats, this investment has certainly proved profitable. Furthermore, located in an up-and-coming town, these particular apartments now reach somewhere from £250,000 to £260,000 in residential sales, giving the investor the added reassurance that their equity has increased in value.
In essence, when it comes to property investment, it does pay to be a little more cautious and do your research, which we can always help with. As a conscientious letting agent, we consider it our responsibility to maintain up to date knowledge of the changing, and somewhat challenging, demands of the rental market.
If you require any guidance or advice with investing, please feel free to pop into our Fleet office or contact us on 01252 514000, firstname.lastname@example.org.