Given our predictions for 2020, we forecast residential property will continue to be a steady, stable performer.
Why residential property investment?
- lower volatility than other asset classes
- a tangible asset, a real asset with real tenants, and most importantly an investment that people understand
- a macro environment of limited, constrained supply and increasing demand from both house buyers and tenants
- a low interest rate environment with the ability to attain cheap fixed rate debt
- a relatively stable economy
It is no wonder that pension investors like to invest in residential property. It is the fact that it is a relatively easy, credible investment to understand.
Where should one buy?
Whilst we predict national house price increases of 4% in 2020; as mentioned above there will be large regional differences. Please note we always recommend purchasing on a 5 year + investment horizon. East Midlands and East of England where we manage c 1000 residential units, and where we are active in helping our investor clients source attractive investment properties to buy.
As in the past couple of years, we particularly like this geographical market (and yes, we would say so if we thought there were better opportunities elsewhere!). Indeed, we believe that there may be buying opportunities in London this year, so do let us know if you are interested in investing in London and we can ensure you are kept up to speed.
Why the East Midlands and East of England?
- relatively strong local economic activity with inward investment and good employment prospects
- strong local and regional road and rail networks providing good transport links
- house prices below national average, and still rising from a low base (prices are only up c20% from 10 years ago)
- low capital values in relation to build cost which limits competition from new builds
- an active first time buyer market
- high rental growth prospects
- benefitting from the ripple effect of wealth flowing out from London; areas which are within a 1hour commute of Prime Central London at a fraction of the price.
What are the expected returns?
The blended returns of superior capital growth potential (5%+) accompanied by an attractive net rental yield of say 5% make for an attractive total annual return of 10% +.
Please note these returns are ungeared, with borrowing the return on investment is significantly greater.
Longer term, we forecast 5 year capital appreciation of c20% (Savills 18%) combined with rental growth of similar amounts (Savills 15%).
This makes the East Midlands and East of England region one of the top forecast areas for capital appreciation in the UK.
How should one buy?
There are 4 key components of residential property investment;
- A: Buy Well: you must get proper advice and use the expertise of someone like us who work in the market 24/7. It always amazes us that people use stockbrokers to buy shares and use estate agents to sell houses but often do not use property finders to buy investment property. Residential investment is typically a significant amount of money (hundreds of thousands of pounds) and it is important you spend it wisely. Yes, there are fees to property finders, but at c1% and amortised over the 5-10 year life of the investment it is a small price to pay for good advice.
- B: Manage tightly and control costs: It is imperative that your asset is well looked after. The wrong manager, the wrong tenant, the wrong contractor can all greatly affect the net rental income of the property and thereby the total return on the investment. We manage and let properties throughout the whole of the East Midlands.
- C: Financing: Monitor the performance of the asset over the longer term. Consider leverage; money is cheap at the moment. Build a portfolio of properties if possible to diversify risk. All important considerations.
- D: Sell Well: It is important you receive the very best price for the asset you are selling. Not only should you appoint a good agent but you need ensure the property is presented as well as possible. Might it be better to sell the property tenanted,? Could a redecoration improve returns? Could a refurbishment improve returns? Etc. Through our local branches we offer estate agency services. We differentiate ourselves from other estate agents in many ways (we hope!) but importantly we have access to a large database of active property investors who are continuously seeking new units to purchase.
If you can buy well, manage tightly, finance the investment as best possible, and sell well then you will achieve the very best returns; a blended return of capital appreciation and rental yield.
To do all this it is imperative you seek the right advice, and we would be delighted to advise you. A poor purchasing strategy (or indeed exit strategy) can have drastic effects upon the total return.
We continuously review investment opportunities throughout the UK and we are not geographically constrained. Each opportunity is assessed on a project by project basis on its own merits. As always, due diligence of the unit(s) concerned is imperative. You must choose the right area, the right location, the right development, and the right unit(s) in which to invest in.
We have been actively finding properties for investors since 2001, we know the local markets, we have the contacts, and we manage properties throughout these regions and we are therefore able to advise and assist our existing clients as well as new landlords.
It means you are being hand-held in what can be a complex purchase procedure, it means being confident in the decisions you have made to invest, and it means that we do not just source a property then run, but once sourced we will manage the property, and hope to forge a long term relationship with all our clients, old and new.
Our property services include property finding, lettings and management and estate agency. Please see links for further details;
We wish our clients and friends a very prosperous 2020
The Team at Osprey Property (a division of Residential Property Group Limited)