Is it a good time for landlords to invest or should they wait for the market to decline?
As a property investor, you'll have a plan for the future. Either an exit strategy or the intention to keep hold. Whatever your approach, should you be trying to build a portfolio and buy more properties, or should you be waiting for something to happen in the market first? Read this article to find out…
As an investor in property, it can be hard to make the right call and decisions that will serve you well in the future. We don't have a crystal ball and have little idea about how the market will change. Who predicted the rise in the market after Covid? Not many.
The likes of Halifax and Savills predicted that once the lockdown restrictions were lifted, we would see a catastrophic drop in property values, some even suggesting upwards of 30%!
But what actually happened? Practically the exact opposite. Prices rose, buyers suddenly developed an appetite for moving, and people saved money because there was nowhere to spend it and decided to buy a new home.
Many investors saw this unexpected price hike as an opportunity to sell up, cash out, and run off into the sunset with their newly acquired capital growth. But what about those of us who are still in the game and are in it for the long haul?
You might have a portfolio that's been steadily increasing over the years. Perhaps you have been on a trajectory of buying a new property to add to your portfolio each year? But with prices skyrocketing, finding those deals has undoubtedly been much trickier. As a result of the property price hike, many investors have paused buying more properties because the numbers simply don't stack up.
But perhaps the numbers do stack up, just not quite in the same way they used to? Change is difficult to accept, but the property market changes constantly. We've seen prices rise exponentially over recent years, but rental figures have increased, too. So, perhaps the figures could stack up after all? You might just have to search a little harder to find them.
In a pre-covid market, a property could be purchased for, say, £200k and rented out for £750 per month. However, for a few years post-COVID, that rent amount would still be £750, but the purchase price would have increased to as much as £240k. Suddenly, the margins are not so favourable and perhaps, with mortgage payments included, there could be no profit at all.
Many landlords aim for an average yield of 7%, but the initial purchase price and property value increase considerably reduces that percentage return.
Because of this unfavourability, many investors have paused their portfolio growth. They are waiting. But waiting for what? For the prices to drop? For the market to crash?
What are you waiting for?
Three years ago, the economists predicted a huge crash, and it just didn't happen. You could be waiting for something that never comes. In the meantime, you're missing out on rental income. Rental prices have recently seen such a massive rise in demand that prices are increasing; there is that favourable margin you've been waiting for!
If you'd bought another property in 2020, you'd have had capital growth from the market increase that followed and three years of profits to add to your revenue. Three whole years!
Time flies when you're having fun, doesn't it? And you've been sitting still waiting for something that may or may not happen when other investors have been pocketing their profits.
No time like the present!
There is no time like the present. The market never sits still and is constantly changing, but ultimately, if you plan to retain the properties in your portfolio for a long time, perhaps into retirement and beyond, then the market conditions are arguably somewhat irrelevant. As long as the numbers stack up, it's worth buying at any time and building that portfolio for the future.
And there's another reason not to hang around.
There is another reason to get on with buying your investment properties sooner rather than later. If the property does crash, the availability of finance will likely reduce considerably. Mortgage lenders will begin to crack down on their lending criteria and will become more cautious with the loans they grant. You may be one of those landlords who opt to pay cash for your investment properties, buying them outright so this won't impact you so much, but consider how much faster you can grow your portfolio if you leverage finance. If you wait for a market crash, you might have no choice but to pay cash or struggle to raise the funding.
Buying properties is a great investment option but a long-term strategy. In reality, when you've held a property for twenty years or perhaps longer, the slight variations in market prices will not have any significant impact. Looking back to the market twenty or thirty years ago, property values were significantly lower than today, and it's fair to assume that it will be the same in the future, too.
If you're a landlord and want to know how you can grow your portfolio, get in touch with our team of property letting experts today.