Are Investment Properties Worth It in 2021/2022?

Why Do People Buy Investment Properties? 

Before we take a look at answering the question “are investment properties worth the investment?”, it’s essential to look at why people buy investment property in the first place. 

Simply put, real estate investing is a fantastic way of generating passive income. Allowing investors to earn rental income every month while also enjoying a huge cash pay-out further down the line, few assets can deliver such high returns. 

For instance, in Manchester, in the last 20 years, the city has seen an average property price growth of over 315%! 

It’s also safe. Despite the Covid-19 pandemic and the UK economy suffering, UK property prices are increasing at the fastest rate since 2004. Meanwhile, the stock market experienced its worst crash in 2020 since 1987. 

While this all sounds good, the reality is real estate investing isn’t for everyone. 

If you’re a short-term investor and don’t want to wait for the long-term growth of property investment, buying rental property will likely not be for you. 

Are Investment Properties Worth the Investment in 2021? 

Now that we’ve established why people buy rental properties in the UK, it’s time to look at why investment properties are worth the investment in 2021 and why they may not be for you. 

Yes, Real Estate Investing is Worth It 

Massive Property Price Growth for Rental Property 

One of the main reasons behind the appeal of real estate investment is the long-term capital growth potential. 

With rental property in constant demand, property prices continue to grow, helping to deliver some of the highest returns possible in the UK. 

Take the last year as an example. In 2021, the average UK property value surpassed £250,000 for the first time ever after increasing at the fastest rate since 2004. 

The average UK property price is now valued at £264,244, according to the latest available Land Registry data in November 2021. This is a whopping 10.56% higher than 12 months ago, and it gets even higher depending on where you invest in real estate. 

Using Liverpool as an example, one of the best UK investment hotspots in 2021, investment property prices have rocketed by 14.69% over the last year. 

Factoring in additional growth predictions from Savills, that anticipate up to a 28% price growth in UK regions by 2025, and it’s clear that long-term investors are set for a fantastic cash pay-out in the coming years. 

Rental Income is Higher Than It Has Ever Been 

Alongside the massive property value growth, rental income for buy to let property investing has also shot up. 

According to HomeLet, the average UK monthly rental income reached a record high of £1,061 in September 2021 – an average annual rental income of £12,732! 

This growth has stemmed from a newfound appetite to move homes, with lockdown leading to tenants re-evaluating what they want out of their rental property.  

Simply put, landlords’ profits are higher than they have ever been in 2021, thanks to the massive increases in both forms of income. 

Huge Tenant Demand With Housing Short Supply 

As mentioned, covid-19 lockdowns have led to an unprecedented change in the UK real estate market, making now one of the best times to ever invest. 

More people than ever are looking to rent, with a report from estate agent Hamptons finding that it took just 8.9 days for a landlord to secure a tenant in April 2021, down from 31.9 days in April 2019! 

This is caused by a massive supply and demand in-balance, with Buy Association reporting 45% fewer homes available to let in Britain in 2021 than in 2019. 

Even now, in November 2021, this short supply has continued, with Urbanbubble finding that the amount of available rental properties in Manchester reached its lowest ever level. 

With these reasons in mind, if you’re asking, “is now a good time to invest in property 2021?” then the answer will likely be yes, depending on your investment goals.  

No, Real Estate Investing Is Not Worth It 

While there are several key reasons why buying buy to let property is worth it, there are some reasons many landlords think that real estate investment property is no longer the best choice in 2021.

Property Prices Can Be Expensive 

The current average UK property value is currently £264,244. Naturally, this is an incredibly high number and can put many landlords off from buying real estate. 

While there are various ways to combat high house prices in the property market, including borrowing money with a buy to let mortgage, there is no escaping the fact that you’ll need a considerable amount of cash before you can start real estate investing. 

Of course, this property cost is for the entire UK average. You can find far cheaper properties closer to £100k depending on what property type you want and which city you look for. 

For our money, you can maximise your investment potential by securing a buy to let apartment in a city centre location like Liverpool, which will be available at far closer to 100k, while also offering strong returns upwards of 7% NET. 

Real Estate Ongoing Costs Can Be Pricey 

Alongside the higher prices for purchasing buy to let property, there are also many monthly expenses to deal with that aren’t present in alternative strategies like stock investing. 

To afford the money involved with buying an investment property in the UK housing market, you’ll likely opt for a buy to let mortgage. 

These work differently than traditional mortgages, as you’ll need to pay a 25% deposit. They’re also interest-only, which means you will only pay the interest each month without touching the overall debt. 

Stamp duty tax is another high entry cost, with buy to let investors paying a 3% surcharge on top of standard rates (check out our stamp duty guide to learn more). 

You may also need to set aside a cash buffer, roughly around £2000 is recommended, to help deal with any unexpected costs that may occur. 

All the costs you can expect to pay include: 

• Stamp Duty tax 
• Mortgage interest payments 
• Tax bill including property taxes like income tax or capital gains tax 
• Maintenance costs 
• Legal fees 
• Land Registry fees  
• Homeowners insurance 
• Estate agent fees 
• Ground rent 
• Property management fees 

You shouldn’t be put off by all these costs as you can earn some serious returns, but it’s important to note that you will need money for investment real estate. 

Overall, if you’re asking, “how much money do you need to invest in property?“, our research suggests you’ll need around £30k to cover the entry costs of buy to let property.  

If you don’t have this sort of cash available, you won’t be able to afford buy to let property. You should instead resort to alternatives like stock market investing or real estate investment trusts. 

Mortgage Tax Relief is Lower Than It Ever Has Been 

A factor that has impacted buy to let as a worthwhile investment is the tax bill. 

Buy to let profits have changed due to a host of changes to tax incentives and tax relief. 

One big factor is the reduction in mortgage interest relief since 2017, with basic rate taxpayers and higher rate taxpayers no longer able to reduce their tax bill and deduct mortgage expenses from rental income. 

Instead, landlords now get a tax credit fixed at 20%. While this won’t impact basic rate taxpayers, it has significantly impacted higher rate taxpayers who previously saw a 40% tax relief. 

Conclusion: Are Investment Properties Worth It in 2021/22? 

Overall, the key takeaways from this are that while the money earned and the income generated from buy to let is higher than ever, the increase in other costs and tax changes to mortgage tax relief has meant that overall income has been impacted. 

This doesn’t mean property is no longer ideal. Instead, it means you’ll need to do more research to find the right property in the right location to generate the best returns – something we’ll address in the next section. 

Therefore, if you’re looking at buying your first property or want more properties and would like to know is it good to have an investment property, it really depends on your goals. 

If you’re thinking long-term and are planning for retirement, buying an investment property to rent is still a good investment in 2021. And it can get even better if you shop around carefully for properties at a good value with strong rent returns. 

Investing in Rental Property for Beginners 

How to Buy a Rental Property to Maximise Your Returns 

To save as much money as possible and lower the cost of property investment, a smart idea is investing in either residential property or student accommodation off-plan with a property investment company. 

This is for a few reasons. 

1. Residential property offers the highest capital growth returns. At the same time, student accommodation is far cheaper and can deliver a higher rental yield. 
2. By buying new build buy to let off-plan real estate (buying property that hasn’t yet been completed), you can save a tonne of money on your purchase. 
3. Using a property investment company can help you keep the cost down with payment plans, assured rent returns, and exclusive opportunities you won’t find anywhere else. 

When looking at properties, you should also focus on capital growth and rental yield to ensure the most successful investment possible. You can learn about what is a good rate of return on rental property in our guide to how to invest in rental property as a beginner. 

You’ll also need to find property in the right location, with the best property hotspots currently Liverpool, Manchester, Birmingham, and Luton.  

You can get further information about investing in all these locations by checking our guide on the best places to invest in property. 

Alternatively, to learn more about buying an off-plan property, be sure to check out our detailed guide. You can learn more about student property investment by also clicking the link.