Oxstones Investment Club™If money was no object, would you invest in more expensive rental homes across the UK, or would you keep buying in the more affordable regions?
Over the last few years, thousands of people have spent billions of pounds investing in millions of rental properties across the UK. Whether it’s a long-term investment designed to be their pension fund, or a shorter-term plan that looks at making as much as possible in a smaller timescale before selling for capital gains, landlords of all shapes, sizes and wealth have started to embrace the benefits of investment in what has become one of the most accessible asset classes around.
It has meant that we now have almost five million rental homes in action across the UK property market, with more than 2.5 million people living in privately rented properties. Many of the two-million plus homes that have come to market in the last decade or so have been in the emerging regions, away from London, where lower price points allowed those who could not afford to buy in the more popular areas the chance to get into the investment market.
This trend allowed the regions to become more popular over the last few years, and they’ve now developed their own market, where yields of more than six per cent are fairly common, and give investors the chance to capitalise on growing demand to good effect. So, with that in mind, and the fact that the regions were often previously seen as a gateway into buy-to-let, we ask, where would you invest in UK rental property if money was no object, and do the more expensive homes really offer the best returns?
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Price v returns
The most important thing for any landlord investing in the UK rental market is that they make a strong return on their investment. For decades, this meant spending as much as you could to be able to afford the more expensive homes that brought in the best rental prices. However, this has changed over the last few years.
Now, the price in London for investors sits at an average of more than £478,000. This is compared to £125,000 on average in the north of the country, representing a huge north-south gap. While it may make sense that the best profits would come from investing in the more expensive homes, you need to ask yourself as an investor if this really is the best strategy to employ.
While London rental prices are also high, coming in at way over £1,500 per month on average, they do not necessarily represent the best returns on investment. Those who spend far less in the north and regional cities are actually often making far better yields from homes that cost as little as £750 per month or less on average, because the initial investment is so much lower.
This is something that’s important to remember for investors, especially when money is no object. Although you might be able to afford to spend more, you should never forget to be stringent in your research. Don’t just spend more because you can; ask yourself if regional property, where prices are lower but yields are higher, represents the best way to make money across a number of years.
New developments
Another thing to consider when it comes to money is how smartly you invest it. London may, again, be able to give you the homes that bring in the highest rental income per month, but are these investments future proof? Development of new homes in London’s central regions is low, as the city suffers from a lack of space. And this can harm the rental market.
Away from the city, however, new trends are emerging. Increasingly, rental investors are looking at options such as the Build to Rent sector, hailed recently as one of the real drivers behind UK construction growth. Not only does it allow them to buy off plan, securing short-term returns and allowing them the chance to buy at below market value, it also lets them invest in homes that are specifically built with the rental market in mind.
While these may not be the costliest homes you can spend your money on, there is an argument to say they are still the best option. Even if money is no object, spending on homes that are built with tenants in mind means future-proofing your purchases, and getting in on a market that is growing in demand – and is only likely to continue to do so as demand from tenants climbs higher and higher in UK regional cities.
So, if money was no object, where would you invest in property? In many cases, it may seem that the best thing to do is spend high and expect big returns, but this is not always true. Those who instead look to spend smart often find that they have the best potential for success.
This article has been provided by London-based UK property specialist Experience Invest.
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