More new landlords than ever before are turning to property investments – specifically buy to let property investment as a long term strategy to fund their retirement.
The number of single property owners deciding to buy a property solely for the purpose of renting it to tenants for the first time has risen siginifantly in the last 2 years. The main reasons given by new landlords where
• 84% view their rental property as an additional source of income for their retirement.
• 60% of landlords plan to live off the rental income either before of after retirement.
• 40% agree that their property is their pension and intent to make a decision when they reach retirement whether they should sell the property then, or continue to rent it out.
Over half of the new landlords asked say they plan to buy further properties before they reach retirement age, with a quarter of landlords hopeing to buy enough properties to enable them to retire from their regular employment before they reach their official retirement age.
This shows that there is a very positive outlook on the rental market from private landlords. However, with the influx of new landlords comes a series of common pitfalls that a number of landlords will find themselves in at some point whilst renting a property out – indeed those that don’t are extremely fortunate as rent arrears affects most landlords as some point in time. Extreme rent arrears (those categorised as being over 8 weeks) are usually in the region of 2.5% and 5% of all tenancies.
There is lots of advice available to new landlords with regards to the type of rental property they should buy, but probably the main piece of advice is to buy a property in a popular area which you familiar with. Average rental yields are about 6.5%, however by renting property in a popular area you could general yield around the 8% mark. London and the South East (due to high property prices) actually produce the lowest rental yield (as low as 3% in places) so it is certainly worth doing your homework and finding out what a realistic rental amount would be, which would be competitive enough to ensure your property is not left unoccupied for long between tenancies – as this is by far the biggest drain on profitability.
33% of landlords reported void periods in Q4 2012, a 4% decrease compared to Q3 2012 and a 13% decrease compared to Q4 2011. However, that is still a significant number of landlords with property that is not generating any income.
Record low interest rates maintains that the income generated (even on mortgaged property) is often still delivering good profitability.
Buy to Let property investment typically falls in to two categories – those landlords looking to generate profit from rental income, and those looking to build capital in equity. Both are successful in their own right and there is nothing to stop landlords from combining the tactics to have some profit generating properties and some capital building properties. If the landlord is concerned with maximum profit from the rental income, then using a specialist buy to let mortgage broker such as Ascot Mortgages who could ensure your buy to let mortgages offer the best value. First time landlords can get some further advice here.