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Buy-to-let masterclass: how to spot the next property hotspot

In the latest instalment of his buy-to-let masterclass series, property expert and presenter of The Property Podcast Rob Bence looks at how to find the next property hotspot.

With 2018 drawing to a close, property investors will be looking ahead to the next 12 months and considering their next investment.

But how do you go about choosing a location? For most investors there’ll be mitigating factors that will influence the decision.

Some like to buy properties near to where they live, for example.

Others will be swayed by the type of property they’re after, which will then determine where to look.

For those willing to take a punt on a new and upcoming area, there can be big rewards and the simplest way to identify these areas is by using a technique we call ‘the ripple effect’.

It’s a very simple and, in some ways, obvious tactic.

Spotting the first ripple

When property in one area starts to become more expensive, those people who would have traditionally bought in that area are priced out and have to start looking a little further afield.

They’ll buy a property in a nearby location (so the original spot is still accessible) and this second area will, in turn, start to see price growth as a result.

That means the people who would have bought in this second area are also priced out and have to move a little further out and so on and so on.

So that initial price growth in the first area causes a ripple effect that spreads much wider.

The most obvious example of this is London. Following the economic crash in 2008, the London property market was brought to its knees.

Prices fell significantly.

However, overseas investors who saw London as a safe haven for their money quickly began to snap up prime London properties, pushing would-be buyers further out.

This ripple effect continued until almost all of the South East was impacted.

Indeed, in 2016, eight years after the crash, Luton was named the best investor hotspot in the UK by estate agents Jackson-Stops.

Liverpool an intriguing prospect

buy-to-let masterclass

A similar thing is happening in Manchester.

A few years ago the city was not seen as the first choice for property, but millions of pounds of private, public and overseas investment has seen Manchester soar and as a result, the surrounding areas in Greater Manchester have also seen significant price growth.

I predict Liverpool will be next.

Overseas investors currently ploughing money into Manchester will start to look for their next location and Liverpool ticks a lot of the boxes they’ll be looking for.

We’re already seeing development there and I know from speaking with developers that there is a lot more to come.

So how can you identify the ripple effect elsewhere?

How to spot the next big thing

Well, the important thing to remember is that all ripples start with a stone being thrown.

That stone could be a number of things: gentrification is a big one.

Once an area becomes a nice place to live, more businesses move into it, more amenities are created and prices start to rise.

East London is a perfect example of this.

Transport links can also start the ripple effect: a new train station, for example, can see prices increase in areas 10 or 20 miles away.

When an area becomes a ‘commuter’ town prices can soar.

It’s a commonly-used tactic, but it’s not for the faint-hearted. To really make the most of the ripple effect you need to be brave.

You need to get in on an up and coming area before anyone else, before you, too, become priced out.

But, if you’re willing to take the plunge, it can reap huge rewards.

Source: Love Money

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This is the best place for buy-to-let investors to buy!

It’s no surprise that the UK buy-to-let market is suffering a crisis of confidence right now. Landlords are becoming jittery over the stagnation (or in the case of London, painful decline) in property price growth over the past couple of years, not to mention tales of a possible market collapse in event of a cataclysmic ‘no deal’ Brexit.

They’re also becoming more and more troubled over the growing raft of regulations befalling the sector, a natural consequence of politicians trying to curry favour with the growing number of young and middle-aged adults still stranded in the rental trap.

Indeed, recent data shows that in this climate, landlords are more likely to reduce the size of their property portfolios than to buy up more bricks-&-mortar assets.

Irish eyes are smiling Sure, conditions might be tough in Britain, but there’s still plenty of opportunity for buy-to-let operators to make a fortune. They simply have to look a little further afield.

Ireland, for instance, has proved a lucrative hunting ground for property investors for years now. A report from WorldFirst shows that little has changed.

The Emerald Isle just took top spot on the international payments specialist’s European Buy-To-Let League table for the third year in a row, with the average rental yield there registering at 7.69% in 2018. By comparison, the average rental yield in the UK stands at 4.67%, it said.

Commenting on the data, WorldFirst said that “investors in Ireland’s property market have benefitted from significant returns due in large part to reasonable property prices in comparison to soaring figures in other Western European countries. A stable euro, continued economic growth and consistent rental demand have also contributed to the country’s performance.”

WorldFirst said that while sterling has plunged around 17% over the past three years against the euro, Ireland still continues to offer strong returns for investors. It noted that “while a one-bedroom city centre apartment would now set you back almost £11,000 more than it would have this time last year (+6%), the good news is that average rents have risen by £127 (+11%) per month.”

UK buy-to-let remains robust That’s not to say that the British buy-to-let market is totally unattractive, though. Strong rental demand means that average rents in England and Wales were up 2.6% year-on-year in September, according to estate agency YourMove, a rise which WorldFirst attributed to landlords increasing rents in response to the government’s decision to axe tax relief for proprietors.

All things considered, though, I believe that investing in stocks is far superior to taking the plunge in the rental market here or abroad. Indeed, if approached the correct way, buying into share markets has the capacity to make the sort of returns that most buy-to-let landlords can only dream of.

Source: Investing

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Thinking of investing in buy-to-let? Read this first

Buy-to-let property investing has boomed over the past few decades. It has become a popular way of generating wealth as investors have benefited not only from a regular monthly rental income but also soaring property prices.

However, over the past two years, the buy-to-let landscape has changed dramatically. And if you’re planning on getting into this market, there are several factors you need to consider first.

Rising costs

Firstly, renting out property is no longer as lucrative as it once was. During the past few years, to try and cool the housing market the government has tweaked the tax system to make buy-to-let investing less attractive to investors.

A 3% stamp duty surcharge on second homes and a gradual reduction of mortgage interest tax relief, which will reach the basic rate of 20% for all landlords by 2020, will weigh on returns for all investors going forward.

What’s more, the government has been introducing regulation to stop rogue landlords taking advantage of tenants and increasing tenants’ rights.

The cost of complying with these increasing demands could be too much for small-scale landlords.

Extra work

Secondly, as a landlord, if something goes wrong with the property you will have to find the money to pay for it and organise repairs. On top of this, finding and vetting tenants can be time-consuming.

Of course, you could pay a letting agent to take care of everything, but this would consume more of your rental income. Fees amounting to 10% or more of the monthly rent take are common.

Slim returns

Thirdly, for all the time and effort involved managing a property, the returns aren’t that attractive.

Using a back-of-the-envelope calculation, the average tenant’s rent bill was reported as being just over £900 per calendar month at the beginning of this year. That’s around £10,800 per annum. At the same time, the average home price at the end of Q1 was in the region of £226,000, or £232,780 including the stamp duty surcharge.

Based on these numbers, I estimate the average rental yield is 4.6% for landlords getting into the market today. If you deduct a 10% per annum letting agent fee and income tax, you’re left with a yield of around 3.4%. I should, at this point stage, that these figures are only rough estimates.

Also, many buy-to-let investors use mortgages to improve returns, this adds another variable and cost. With these tiny profit margins, it will only take one broken boiler or leaky shower to eliminate a year of income.

Capital gains are usually a significant factor in buy-to-let investors’ considerations as well. Here the prospects are brighter. Mid-single to low-digit home price growth is expected for the next few years, although this will differ between regions. Still, if you take a 3.5% annual income and, say, 2.5% yearly capital appreciation, buy-to-let investing could, according to my figures, produce a 6% return.

Conclusion

Personally, I’m not convinced that this level of return justifies all the work involved. There are equities in the FTSE 100 which support a dividend yield of more than 7%, and with these stocks there’s much less work involved.

So, after considering all of the above, it seems to me that the best days for buy-to-let investing are now over.

Source: Yahoo Finance UK

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4 reasons you don’t want to touch buy-to-let property right now

Buy-to-let property has historically been a very popular investment here in the UK. And that’s no surprise when you consider that in the past, BTL property owners could pocket passive income from rent, write off mortgage interest as a tax expense and, of course, profit from house price appreciation. Many investors viewed BTL investment as an alternative to a pension.

However, the landscape has changed dramatically in recent years due to taxation and regulatory changes, and the outlook for property as a long-term investment is a lot less certain now.

Here’s a look at four reasons why buy-to-let property may not be a great investment at the present time.

Low rental yields For starters, rental yields are quite low at present. This is due to the fact that house prices have skyrocketed in recent years and rental income has not kept up. While it’s hard to get an exact figure on current UK rental yields, research from insurance specialist Direct Line recently concluded that the nationwide average yield is around 3.6%. Of course, some areas will offer rental yields that are much higher than that, yet when you consider that you could easily pocket that kind of yield from a portfolio of stocks or funds, you have to ask yourself whether it’s actually worth the hassle of investing in property for that level of yield.

Falling property prices Then, you have to think about potential property price weakness as a result of Brexit. There’s no doubt property prices have fallen across many areas of the UK in the last year (London prices have fallen in each of the last five quarters) with buyers unprepared to meet sellers’ asking prices. Yet prices are still very high when you look at price-to-wage multiples. Could prices weaken further? I think it’s certainly possible.

Stamp duty Next, consider the stamp duty that you’ll need to pay to purchase a buy-to-let property:

Bracket Standard rate Buy-to-let/second home rate (1 April 2016)
Up to £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1.5m 10% 13%
Over £1.5m 12% 15%

There’s no denying those stamp duty rates are off-putting. For example, a £300,000 BTL property will set you back £14,000 in stamp duty.

Increased regulation Lastly, don’t forget all the new buy-to-let regulation that’s making life more difficult for landlords. For example, rental properties with new tenancies or renewed tenancies are now subject to minimum energy ratings, with landlords liable for big fines for renting out properties that don’t meet the new regulations.

Putting this all together, it appears that buy-to-let isn’t the automatic ticket to wealth that it once was. So what’s a good alternative?

Fantastic long-term returns To my mind, the stock market remains one of the easiest, and hassle-free, ways of generating long-term wealth.

While many people see stocks as risky, over the long-term the figures speak for themselves. For example, had you invested £10,000 in the FTSE 100 index back in August 1987, by August last year it would have grown to £106,000 when dividends were reinvested, representing an annualised gain of 8.2%.

When you consider that with stocks, you don’t have to worry about things like bad tenants, property repairs, or minimum energy ratings and that you can also spread your money over many different investments to lower your risk, stock market investing definitely has appeal. In my view, it’s a great alternative to buy-to-let.

Source: Investing