How to build your property portfolio in today's market
There's nothing quite like the solid security of investing in bricks and mortar. For decades, investment in a property portfolio has been highly profitable in the UK. Bank of England chief economist Andy Haldane even commented recently that property was likely to be a better option than putting money into a pension pot.
Yet, in the aftermath of the UK's Brexit vote, the property market looks less certain than it once did. Soon after the vote result, several commercial property funds were frozen due to high demand from investors seeking to withdraw funds. Developer British Land recently warned that occupiers and investors would take a more cautious approach following the vote.
Depending on your choice of news outlet, the post-Brexit economy could be set for years of recession and decline, or a new golden age of growth and opportunity. The truth is, no one knows for sure how leaving the EU will impact the UK economy, including the property market. So much is uncertain and this doubt is reflected in a shaky property market.
Are property prices set to tumble?
The seemingly endless upward momentum of property values has faltered. Rightmove has warned of a residential property slowdown, particularly in London where asking prices fell 2.3% in July, with a 5.6% decrease forecast for 2017.
Would you be crazy to invest in a buy-to-let property portfolio in today's market? For those who know how to invest wisely, there are plenty of opportunities to build a strong portfolio. What should you be looking out for?
Uncertainty favours the rental market
Economic uncertainty makes people less confident about purchasing decisions. Tenants tend to rent for longer before buying, especially if asking prices are falling. In addition, sadly some homeowners will be unable to keep up with the mortgages and will also be looking to switch to a private let.
Falling prices and increased mortgage defaults mean that there should be some bargain properties for investors who know how to spot a property with potential. For example, repossessed properties are often sold through auctions for a lower price than they may receive through the usual sale route.
What the post-Brexit interest rate means for investors
In August, the Bank of England cut interest rates to a record low of 0.25%. Some banks have even suggested that they might cut their commercial rates to below zero – effectively making customers pay to deposit money with them.
Of course, this translates into reduced mortgage payments for those on tracker mortgages. It also provides extra incentive for investors to seek out options with better returns than traditional savings accounts, ISAs and pension funds. This might be about focusing on the long-term: if property prices increase faster than interest rates, it's likely that investing in the sector will pay off.
The growth of buy-to-build
Have you noticed the growth of specialist property developments in your area recently? Rental blocks aimed at niche markets such as students have been booming in the last few years. Estate agents Knight Frank estimates that this market will grow from £15 billion today to £50 billion in 2020.
At present, the market is dominated by large-scale investors who purchase entire development blocks but there are increasing opportunities for smaller-scale investors to buy property or shares through development companies that build or manage properties. Pension companies are also paying ever more attention to the private rental sector.
A new way to invest in rental property
Buy-to-build is a more flexible approach to a market where traditionally, investors would buy entire properties to let to tenants. Innovators are developing options such as the London Central Portfolio's London Central Apartments Fund to provide more choice.
The fund purchases rental properties in central London using investments of at least £25,000 from private funders. The goal is to deliver a 10% minimum return through capital growth and rental income. Investments are reflected through shares, which must be held for four years or more.
This type of investment can offer real advantages to investors. There is reduced risk compared to traditional buy-to-let, because funds are spread across a range of properties owned as a pool. Income yields are also likely to be higher due to economies of scale and the use of experienced investors to identify and negotiate property purchases.
Is it time to protect your property portfolio?
While you can't insure away all risk in property investments, insurance can play an important role in protecting your finances during difficult times. Do you have the right policies in place? Talk to Stride about your needs today.