Should you still be buying property as an investment?
Property is considered a nice, steady, long-term investment for many investors. Committing to owning the property for many years gives an almost guaranteed positive return. So should you be overly concerned about the market conditions?
Property is considered a nice, steady, long-term investment for many investors. Committing to owning the property for many years gives an almost guaranteed positive return. Some even see property as a retirement plan and intend to hold on to their properties for the rest of their lives.
Buying and holding on to a property for many years means the fluctuation of the property market is not so much of a concern. Whatever the housing market is doing from one month to the next is not particularly relevant unless the investor considers selling.
However, if you're thinking about buying, refurbishing and then selling a property to make a profit, you will need to keep a very close eye on the market. Relying on property flips as your strategy could leave you in a sticky situation if you're mid-renovation and the market takes a nose dive.
With the peaks and troughs of the property market, this risky strategy can be stressful if you're working against the clock to turn the property around and resell whilst the market is still up.
Otherwise, you could have purchased it at quite a high price, spent money on the renovation, not earned any income from the property whilst you own it because it is being renovated, and then when it is ready to sell, it is worth less than you have spent on it. Of course, in this scenario, there will always be the option of holding on to the property - you still own the asset after all - but you won't be able to release the equity you invested until the value of the property increases, so you are somewhat tied in.
A much calmer and less frantic way of making money with property investments is to hold onto them and rent as a buy-to-let. A regular monthly income for the duration of the tenancy, which in the UK is an average of 3-4 years, will provide you with peace of mind that you are in the black with your investment. This way, you also have a simple way of ensuring you can make the monthly mortgage and insurance costs.
If you keep a property long-term and rent it out, the market conditions are largely irrelevant. Values can ebb and flow, and you needn't worry. It only becomes something you need to consider carefully if you decide to sell a property or purchase more.
Despite drops in market values, property has traditionally been considered a good, solid investment - it's as safe as houses, you might say.
Usually seen as a cycle of approximately 18 years where the market will reach a peak and then a reduction or correction. But interestingly, the peaks are always higher than those of the previous cycles, and the troughs are never as low as before. So, in theory, if you hold on to a property long enough, you won't lose money.
Like all markets, the property market is volatile, changeable and unpredictable. The stress comes when you try and play the market - buying at the trough, the lowest price, and trying to renovate and sell before the market peaks and the prices begin to drop again. Of course, 18 years is a long time for this cycle to play out, but if you are getting close to the end of this 18-year process, you could be playing with fire.
A much simpler way to invest, without the stress and turmoil, is to hold on to it long term. You can retain a property in many ways, using serviced accommodation strategies or HMO if the property is on the larger side. These may return you more monthly income but require more input from you to run things.
Also, there are ways, if the market at the time is robust, that you could buy, refurbish the property and then remortgage at the new higher value before renting the property out. This will give you back your initial investment, or at least some of it, to allow you to buy another property and do the whole process again, building your portfolio as you go.
On top of the increase in value, you will receive monthly revenue generated by the property and the costs and expenses being paid. Granted, it is a lesser amount of income than if you had sold the property, but it is monthly, and once you've sold a property, you are no longer receiving an income from it.
Renting the property out doesn't have to involve you as letting agents manage everything for you. Of course, if you only have one property, you might think you could have a go yourself and save that cost, but there are complex laws and legislation that you must adhere to, and these things change regularly. It's better to leave it with the professionals to ensure that you receive your rent each month and that the tenancy remains legally compliant.
Then, as you build a portfolio of properties, it would be almost a full-time job for you to manage yourself, whereas, if you gave the portfolio to a letting agent to handle, you might even find that you can negotiate a reduction to their fees! And surely, you would rather relax with your new investment income than give yourself a new full-time job managing it all, wouldn't you?
To find out how we can help you with your property investment, or if you are thinking of buying one, get in touch today to discuss with our expert lettings team.