Investment properties and buying to let
THERE have always been those who use property as an investment but while interest rates remain at a record low, more and more people are realising its potential to earn some return on their capital.
The rental market is particularly strong at the moment, mainly because it is so difficult to obtain a mortgage, and a good quality buy-to-let property can earn much higher yields than anything offered by financial institutions.
And although the tradition of renovating houses to sell them on at a profit is not proving as popular while the property market remains so flat there are still those with a keen eye for a bargain which they hope will earn them a profit.
Tim Shobrook, of Shobrook and Co Ltd has had a ringside seat on this sector of the property market in Plymouth for over 40 years, particularly when he has been conducting auctions in the city and observing the fluctuations on the property market.
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When we spoke to him last year he recalled the huge changes he has seen during that period with most of his clientele during the early years being a group of local builders, usually the same faces, who regularly came to the auction rooms looking for a house to renovate to keep their workforce busy.
Their numbers have been increased over the years by a growing number of private investors, many of whom have been inspired by the crop of television programmes focussing on the money that can be made by modernising and selling properties ripe for renovating.
But he says those buyers are now thin on the ground. "Developers have become very cautious in the current market," he said. "It has become much harder to find a profit in a house simply by selling it on, by the time you add in your selling fees and the cost of the renovations, so by far the biggest majority of investors are looking for homes which they can rent out.
"This in turn has an effect on the type of property that is selling.
"Not so long ago we couldn't get enough of the smaller, two-bedroom houses in an area like Keyham which were perfect for first-time buyers but there are fewer of those these days because unless they are fortunate enough to have a substantial deposit of £20-30,000 they are finding it impossible to get a mortgage.
"That is making that type of property much more difficult to sell. There is a huge demand, however, for larger houses close to the university which can be used for student lets.
"Plymouth University seems to be continuing to maintain its student numbers and that is keeping that sector of the market very buoyant."
There is also a growing demand for family houses, according to Jade Ellis of Doorstep Property Management, which is based in Plymstock.
"We provide a complete management service for landlords and can advise them on the type of properties which it is good to purchase as an investment for the rental market or on what tenants' requirements will be in a house they already own," she said. "We can also advise them on current legislation.
"The majority of the homes on our books are in the Plymstock area but we also manage properties as far afield as Buckfastleigh as well as other suburbs of Plymouth and there is a huge demand for good-sized family homes.
"Sometimes tenants may be relocating to the area for work, or else they are finding it difficult to get a mortgage. But we have lots of people looking for three and four bedroom homes suitable for a family.
"They want a garden – or at least some outside space – and somewhere to park the car and they want to be close to good schools, which helps to keep Plymstock very popular.
"Families also want homes that have storage so a house that meets all those criteria will be snapped up in a matter of days. One of the biggest problems is finding landlords who are willing to allow families to keep pets."
As with any investment, it is crucial for potential buyers to do their homework first. As cash buyers they will not have the requirement of a mortgage provider to obtain a survey but failing to make a thorough investigation of a house could prove to be a costly error in the long term.
If you are not doing the work yourself get a detailed quote from a reputable builder and work out how much it is going to cost you to renovate, what your profit margins are likely to be and what the top price you can afford to pay is going to be before going to auction. And don't be tempted to exceed it.
And don't be tempted to get carried away with expensive renovations and luxury touches which reflect your personal taste but that will add little capital growth to a house.
Local investors could find themselves in competition with potential buyers from outside of the area, especially for houses suitable for the lucrative student market, but Mr Shobrook says that a growing number of purchasers are now local.
"They know that if they put their money in the bank they are not going to see any return on it," he said. "They know that by investing in the buy-to-let market they may be able to expect a return of as much as five or six per cent and also eventually see the value of their investment rise, although in the current climate that is not likely to happen for a couple of years."
Bricks and mortar have always been the favoured investment of a few but an increasing number are seeing it as a safe place to put their cash.