Long Term Investing
Research carried out by the Association of Residential Lettings Agents (ARLA) and by individual buy-to-let mortgage lenders consistently concludes that the vast majority of landlords view their rental property as a long-term investment. ‘Long-term’ in this instance is considered to be 10 years or more. That applies whether you are an amateur landlord with just one rental property to your name, or a large-scale investor with dozens of lets.
Admittedly the last two years have seen a rise in the number of so-called ‘accidental landlords’, who have been forced to rent out their property rather than sell it, and logic dictates that these will in many instances be the most keen to sell up once the market picks up in their part of the country.
So working on the assumption that more than 90% of ‘deliberate’ landlords want to keep their investment for more than 10 years, what are the most pressing issues?
Matching your mortgage
Depending on your attitude to risk, it can make sense for a long-term investor to consider a long-term borrowing product. If you want to finance a property for 10 years, the a 10-year fixed rate mortgage may be a safe option? Unfortunately at the moment no lenders are offering such products, claiming that there is insufficient demand. However, three- and five-year fixed rate buy-to-let mortgages are available, and risk averse investors may wish to consider these.
Capital Gain vs income
People invest in property for two reasons: firstly, to see the value of their asset increase and secondly, in order to generate income.
In reality, capital gain is by far the most important of the two. The income generated by a rental property is subject to income tax (although there are allowances which can be offset). And, as most sensible landlords put some of their income aside for maintenance and repairs, only the very large-scale investors actually make a day-to-day living out of their rented properties.
Capital gains, on the other hand, can be very attractive. While average property values have fallen since their peak in 2007, with new-build property being particularly badly hit, let’s not forget that property values have more than doubled in the last decade, and even went up 6.7% in the year to December 2015, according to the Office for National Statistics. Longer term investors who have chosen their properties wisely should indeed reap the benefits in the future.
When you combine property price growth with rental income, even the short-term picture looks modestly healthy. According to research carried out by LSL Property Services this year, the average buy-to-let landlord enjoyed a gross yield of 4.9% in the year to March 2016
Bear in mind, however, that there is no guarantee that you will make money from investing in property.