21 Jul 2016
Author: Stephen Breen
Buy-to-let was once an exciting investment prospect, but thanks to a spate of Government measures, it has now become an expensive and risky game. The increase in stamp duty on second homes and the phasing out of mortgage tax relief has meant that some landlords will struggle to make a profit going forward, and many will be focusing on capital growth over yield.
Fortunately for buy-to-let landlords we are likely to see an increased demand for rental properties going forward after the surprise referendum result. Whenever there is a period of economic uncertainty, the rental market will typically do well, with tenants renting for longer before buying and owner-occupiers switching over to renting.
Large scale investors have already spotted this opportunity – these organisations currently put around £15 billion into property but experts believe this could increase to £50 billion by 2020. Head of UK residential research at JLL Adam Challis says that now is the time for ‘build-to-rent’, with rental properties offering investors a stable cash flow. He believes that apartment blocks offer the best opportunities – with economies of scale benefiting the investor in a way that cannot be achieved in the buy-to-let market.
Although building or buying an apartment block will be beyond the budget for most of us, individual investors can still benefit from the current opportunities in the market. Various pension funds are allocating money to the private rental sector, including M&G and Legal & General, together with several asset managers. London Central Portfolio also recently launched a ‘London Central Apartments fund’ although this is only open until the end of July. The fund manages 45 rental properties in Central London and has plans to purchase 55 more. The minimum investment is £25,000 which can be made via an ISA, and the fund aims to deliver a ten percent return.
Investors could also purchase shares in the companies who are building blocks of rental apartments and managing the properties. One example of such a company is Grainger, which is favoured by the institutional investors. Grainger, together with Dutch asset manager APG, launched the first real estate investment trust (REIT) this week in the private rental sector. However, individual investors cannot yet purchase shares in the REIT as it is owned entirely by Grainger and APG. Grainger anticipates that future REITs will be open to investors.
Investors can also put their money into property through crowdsourcing companies like Property Partner. The company used to focus on purchasing individual homes but now purchases small blocks of flats. The benefit of this investment is that you only need £50 to get started and you can spread your risk over a number of properties, effectively building a property portfolio. The average investment is £4,000 and the average return is 10%. Investors have the option of selling their shares any time, or waiting for five years and benefiting from a potential gain resulting from capital growth on the property.
Another way to profit from property during these uncertain times is to spot a wreck with investment potential. The website YouSpotProperty.com offers a £20 Amazon voucher when you report the property and 1% commission if it is then purchased. The site also pledges £500 to a local charity. For Levinia Gluck, spotting a run down three bedroom house in north London earned her £6,500 commission. The website owners traced the property’s owner and helped resolve a complex probate situation before purchasing the house for £650,000. They intend to do up the property to rent or be sold.
Founders Nicholas Kalms and Benjamin Radstone have had around 1,800 properties submitted to the website since it was launched five years ago and they have purchased 200 of those, paying out bonuses to 25 people as a result. The site has plans for a help-to-let scheme in future that will aid owners in doing up run down properties.