Where and how?
We are seeing impressive growth in two specific areas: Holiday Lets, which are showing the highest proportion of new entrants to market, with 22% of these landlords in their first year. This is followed by flats, with 16% new entrants. Flats have also delivered the highest growth in terms of overall entrants and now account for over a third of total investment properties (34%).
Investment plans: all landlords
Investment plans: HMO owners
The impact of external factors on landlords’ investment strategies is fluid, particularly depending on either the size or the contents of the portfolio. Optimism is greatest for those owning HMOs, with 35% of such landlords saying they now plan to invest as a result on external factors - three times higher than the market average.
43% of landlords who own HMOs are in buying mode. So too are 31% of flat owners, and 29% of Holiday Let landlords. Only 4% of HMO landlords plan to shrink their portfolios, compared to 26% of those who own houses or bungalows.
Meanwhile, just 11% of single property landlords intend to grow their portfolios, and 30% of them plan to sell. For the rest of the market, who own at least two properties, the picture is the opposite: 38% plan to buy, while just 8% plan to sell.
The larger the portfolio, it seems the larger the appetite to grow.
Airbnb has been a big driver of the holiday let and serviced accommodation market. And if done correctly they can be high yielding, successful investments. But you have to invest in the right area, and have the right strategy. Essentially you’re letting the rooms on licence like you would if you were staying in a hotel. It’s a very hands on proposition and that takes a great deal of time and effort. Charging by the night means the yield can be high, but it’s all about your occupancy level - that’s hard work in terms of marketing, and maintenance, and management. In this country the Lake District is a great investment area, all year round, premium rents. But elsewhere, it can be very seasonal - especially around the coast. That means you’re only occupied for half of the year, and that’s going to affect your profits. Often, you’re better off with a city property where people are coming all year round for city-style breaks, or working locally on contracts.
An HMO model can really work. Quite simply, the more renters you have the more profit you can turn. But they are not to be taken lightly. Too often ambitious investors come out of courses and plough into a HMO investment without thinking through the nuances. If you get it wrong, you can end up with a half empty house, struggling to break even. Researching your area, your target audience and your potential investment is key - and advice from a mentor cannot be replaced. You’ve got to know the legislation inside out, and you’ve got to be relatively hands-on to troubleshoot and solve problems as they arise.
Diversifying your investments makes good businesses sense, but with any of these strategies, you’ll need very specific insurance. That’s your back-up, and you need to investigate your options carefully. For instance, in a block of flats the risk to one flat obviously has an impact on all the others - and that can get very expensive very fast. Even with a single flat, people can fall foul of the insurance rules. With flats in the UK you tend to buy a lease to occupy the property for a period of time - 99 years. But the freeholder is responsible for the insurance of the building and the common areas. As a leaseholder you should be making a contribution towards the cost of that insurance - something many landlords overlook - and which could leave you without cover in the event of a claim. Even if you rent your flat out unfurnished, you should consider a basic contents policy as this will include an element of liability cover. So if your tenants injure themselves - for instance on a light fitting - you’re still covered. Always be aware of the level of cover you have from the freeholder, and what you’re not covered for and will need to insure yourself.
Another big area I see for investment is actually in mixed use or commercial property. It’s an area a lot of people miss - because it doesn’t fit in with their idea of being a ‘landlord’. That’s a mistake. This is after all, what most big investment companies do - they wouldn’t touch residential with a barge pole. I often think of investment as a journey, and generally speaking the more professional a landlord becomes, the closer they end up to migrating to commercial investments. Big pension companies, for instance, invest in commercial property because they can guarantee the returns. A residential tenancy is protecting in law by the Housing Act (and the rest), and you can’t pass away that responsibility. In a commercial property you can. Properties are often leased on a 5, 7 or 10 year basis, and if they don’t pay you can get the bailiffs in immediately without a protracted legal battle, and get your property reoccupied asap. In today’s market commercial or mixed properties are actually a really safe option - and as our emerging landlords continue to diversify their portfolios I think we’ll see more move into this area.
When we’re out and about talking to landlords, we’re hearing more and more about Build to Rent. The fact is that there is a housing crisis in the UK, and the government has pledged to create 1 million more homes by 2020. They’ve got to come from somewhere. We know there are already Housing Associations out there desperate for stock - and that demand needs to be met. Often the money in this kind of project is in refinancing, and they often require an initial cash investment. Even if someone can afford it, a development project is often a step too far for many landlords. They can become extraordinarily complex and involved and you really have to know what you’re doing. From an insurance perspective there is also a far greater risk, and you’ll need a specialist insurer or a financial buffer to account for inevitable hiccups, delays - and disasters. Having said all that though - it’s certainly a viable and probably relatively stable option.