The future for private buy-to-let investors

Predicting the future
Mark Alexander from The Money Centre comments “The market will decelerate in 2005. Early indications predict the value growth will be in single figures this year, at around 5%. However, that doesn’t mean that private investors can’t make substantial returns while the market levels out. If properties are purchased with 85% of the value borrowed, and with the standard minimum deposit of 15%, a 5% growth in property values could still translate to a 33% return on equity invested.”

2005 will still see property prices increase, but due to the slowdown in the market people may be uncertain about buying or extending their property portfolio. Mark continues, “A sensible way of increasing your property portfolio in a slowing market is to increase your mortgage, releasing equity in the property. If the property market does decrease, you have already released the profit in the property, making cash available to invest in additional properties at new competitive prices.”

Investors who have already predicted the market will slow are seeking pre-approved mortgages so they can snap up properties that become available at extremely competitive prices. Pre-approved mortgages are great for investors in a position to make multiple purchases, allowing them to quickly build up a property portfolio of the best-value properties, giving maximum returns on investment and potential for capital growth.

Still as safe as … apartments
Although the market looks set to slow in 2005, investing in the private buy-to-let apartments is still a safe way to make money. Compared to other forms of investment, buy-to-let gives buyers the opportunity to make money on other people’s money, through rental incomes and releasing equity through re-mortgaging. Mark comments “There are opportunities to make money if the property market accelerates or decelerates – it really is a win-win situation. If property value increases it is advisable to re-mortgage. By releasing the equity built-up in the property investors are able to increase their buy-to-let portfolio. And as the value of properties increase, so do the rental prices making buy-to-let a profitable investment. If the market decreases in value, which it rarely does, it is also advisable to maximise your mortgage, releasing equity as soon as possible and extend your portfolio by re-investing the cash in competitively priced properties.”

Trends for 2005
“New investors for 2005 may wish to follow some key trends that are beginning to develop. Private investors, particularly in the inner cities are purchasing derelict properties such as pubs and old people’s homes. They are choosing to completely refurbish and develop the properties into profitable living spaces such as apartments, earning substantial returns on the rental income. People with large gardens or plots of land adjoining their homes are developing residential buildings on the land instead of selling the plot. They then make substantial returns on their investment through renting the new property out.”

Capital matters
Mark Edwards, London based Associate Consultant for The Money Centre and expert in the buy-to-let apartment sector can give an insight into how the capital and its investors will be effected by movements in the London market this year. “The buy-to-let market in London is recovering strongly after three years of decline. Landlords are now experiencing fruitful returns from rental incomes. According to latest figures from the Royal Institution of Chartered Surveyors, the average monthly rent for a two bedroom apartment (in London) has risen from £1300 in January 2004 to £1517 in January 2005. That is a massive jump. One of the main reasons behind this substantial increase is the new demand for rented accommodation from young people priced out of the market. We predict this apprehension from potential first-time buyers will continue into 2005 and subsequently lead to further increases in rental yields.”

Develop your investment
In London, the apartment-to-rent sector provides a greater return on an initial investment than the house market, as house prices in London are on average 25% higher than flats. Mr Edwards continues, “Landlords are favouring investments in new upmarket apartment developments. New developments attract professional people who make desirable tenants, and the properties often have low maintenance costs. However, it is important to note that new apartment developments can have hidden service charges, such as maintenance rates for additional features like gyms, swimming pools and 24hour concierge service. Paying out for additional prime services will have an adverse effect on rental yields and investors should therefore look for properties that can provide a good balance between potential future capital growth and adequate rental yields.”

London hotspots
“Currently, the most potentially lucrative areas to invest in the London buy-to-let apartment sector are communities undergoing regeneration. Buyers should look for areas with potential for development alongside residential practicality, for example communities with investment behind them for the future, which already have good transportation links and amenities. Areas such as East and South East London represent excellent value. With the average apartment price currently standing between £150,000 - £158,000, this is 25 per cent less than prices in North and South West London, but the difference in comparative rent is nowhere near as great, providing the investor with a great return through rental income.”

“Choosing to invest in developing areas has the potential for rapid capital growth. Stratford in East London, was previously an underdeveloped area but now has an excellent transport system in place, the International Eurostar Station is planned to open in 2007 and it will be the centre for the Olympic Village should London’s 2012 bid be successful. Stratford has undergone massive regeneration over the past five years and this looks to continue long into 2005 with all the major UK house builders active in the community. This is definitely a hot spot for London investors to watch in 2005.”

Learn to earn
To help existing and potential investors find out more about the lucrative buy-to-let market, The Money Centre is running a series of free workshops across the country throughout 2005, showing investors how to expand their portfolios in the current and future market conditions. They are the only free buy-to-let investment seminars in the country and the only seminars, which provide enough dedicated consultants for each attendee to have a one-on-one discussion after the presentation from leading industry experts.

There will be 24 seminars in total, the first in Sheffield on January 25th kicks off a nationwide tour which will visit all four corners of the country from Cornwall to Cumbria and Devon to Derbyshire, showing existing and potential investors how to earn from property. With the property market as changeable as it is, even seasoned investors believe there is always something new to learn. Using the most recent market research figures available, the seminars provide the facts on the market environment, favourable or not, and provide advice accordingly. To book a place on ‘Making the Most of Market Conditions’ contact Elise at The Money Centre on 01603 489125 or e-mail enquiries@themoneycentre.net

Since its establishment in September 1990, many of The Money Centre’s consultants have been investing in property themselves while working with property investors to help them build their own portfolios, minimise their finance costs, reduce risks and maximise returns.
To speak to a consultant at The Money Centre, Tel 01603 428500 or visit www.themoneycentre.net. To discuss London apartment investment, call Mark Edwards, Tel 0208 364 3444 or email medwards@themoneycentre.net