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Is Renting Property A Good Investment?

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    Should You Rent Property as an Investment Strategy?

    Given the rising cost of living we are expected to face in the coming months, you may be wondering about ways to earn some extra money as a passive income to help get by. There are many ways of investing that can see you make massive returns such as the stock market or cryptocurrency.

    However, these investment methods also come with huge risks and can see your investment crash and burn just as fast as it can rise. An alternative to this which provides both a sturdier market and strong returns on your investment is investing in rental property.

    Although property investment is a stable market with great potential for returns, some fear that we may be seeing an end to the unparalleled growth the sector has seen over the past couple of years.

    Last year, Savills reported that house price growth is slowing to a crawl, with only a 0.1% increase in July 2022. This year, there still seems to be a drop in market activity compared to the last few months. Naturally, these early indicators have some worried, and many are asking the question “Is renting out property a good investment?”

    However, we here at RWInvest believe there is no need for concern, as market trends show this dip is both expected and temporary. Renting property is one of the best ways you can invest money in 2023, and has many great benefits.

    So if you want to know if is buy-to-let a good investment in 2023 in the UK, or if renting property is a good investment, this article is for you!

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      Why Are People Worried About Renting Property?

      Over the past year, the housing market has been at an all-time high. House prices have risen at some of the fastest rates on record and rental prices have been growing 12% in the past 12 months, the fastest rise in 10 years.

      However, recently these rises have slowed down, causing some to think that this period of housing market growth is coming to an end.

      The most recent data from the UK House Price Index found that in March 2023, there was on average, house prices have fallen by 1.2% since February 2023, as well as an annual price rise of 4.1% which makes the average property in the UK valued at £285,009.

      Savills also reported that transactions have fallen by 13% in the last month compared to the pre-pandemic monthly average. This suggests demand may be falling due to fewer people buying homes.

      Part of the reason for the stratospheric rise in house prices has been an imbalance of supply and demand for homes. So if the demand is falling, then this could cause prices to slow as well.

      These signs may look alarming on paper, but there is a lot of proof that this is only a temporary dip due to market climates and that there is no need to worry. The property market will likely bounce back and finish 2023 stronger than it started it.

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      Why Is Renting Property Is Still A Valid Investment Strategy

      Whilst there has been a dip in 2023 compared to the rest of 2022, there is no need to worry about this slowing growth being permanent.

      Instead, think of it as a natural reset button for the housing market after a turbulent period in which housing will become more affordable for many.

      Savills also forecast also predicts that house prices will rise overall by 6.2% by 2027, so if you see house prices fall this year, it shouldn’t necessarily be a permanent change.

      In fact, for investors, this year presents the perfect chance to invest in UK property while prices are low but set to increase.

      Back in 2020, house prices in the UK saw a temporarily slump during the beginning of the COVID-19 pandemic, with average prices falling by 0.6% between March and April. By the end of 2020, average UK property prices had risen to record levels and continued to rise ever since, meaning investors had made strong capital growth returns.

      As well as this, the buy-to-let market has been one of the healthiest sectors in the housing market, as there were 36% more buy-to-let mortgages granted in May 2022 compared to pre-pandemic numbers.

      Added to this is the previously mentioned fact that rents have gone up by 12% since the same time last year. This shows investors are collecting more rental income than ever on their properties.

      This suggests that while homeowners are looking less at properties to buy, the rental market appears to still be going strong. Naturally, this is a positive sign for property investors.

      Combined with the steady rise of rental fees, it is clear that the rental market is still very healthy and worth investing in, despite some concerning headlines suggesting the contrary.

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      Why Is Renting Out Property A Good Investment?

      Investing in rental property is one of the safest ways to invest in 2023, thanks to numerous factors. It combines a consistent cash flow of monthly rental income with a continuously rising capital appreciation.

      There are many reasons why investing in rental property is a good investment, here is a quick breakdown of some of the key reasons:

      • Investing in a rental property offers two ways of earning money over time – through rental income and capital appreciation. This way you can get strong returns on your investment over time through annual income and the rising property value.
      • The rental market is a market that favours landlords due to the lack of supply we are currently seeing. Finding occupants for properties has never been easier due to the number of renters on the market.
      • The housing market is one of the most stable economic markets in the UK, so the risk of losing money when investing is low. Unlike stocks or crypto, property is not subject to fluctuating valuations.
      • A variety of buy-to-let mortgages and price points. You can choose to spread the cost of investing out over time to make it easier on your wallet.
      • Some areas of the UK, like Liverpool and Manchester, have high rental yields, meaning you will receive higher returns on your investment over time.
      • The variety of real estate markets in the UK means you can find properties for less money in different parts of the country. There is far more value outside London than you might think.
      • The purchase price of many rental properties is below the average UK house price, meaning it can be cheaper to invest in rental properties than traditional residential housing.
      • There are ways of getting tax relief on second homes, though this can be tricky to do. Finding ways to avoid stamp duty can help make it cheaper to invest.
      • You see more returns over time through property investment, unlike short-term strategies. You could also set up your property with short-term contracts to collect rent from a variety of tenants over time.
      • Property is a physical tangible asset, so is more secure compared to other forms of investment.

      As you can see, there are many benefits to investing in rental properties right now that you should consider.

      Investing in property is one of the best ways to invest large sums of money, and with a huge variety of options available on the market, there has never been a better time to begin building an investment portfolio.

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      Why Might Renting Property Not Be A Good Investment?

      However, investing in buy-to-let properties is not for everyone. Different investors have different goals they want to achieve, and depending on what your goals are, property investment might not be the right way to invest.

      Although rental property investment is highly recommended, here are some reasons why property investment might not be for you:

      • Property is a long-term investment. You cannot withdraw your money quickly, so if you want something you can dip in and out of, property may not be for you.
      • You need a higher amount of money to begin investing. Property investment requires you to already have a sizeable income to place down payments. Down payments are larger than they usually would be for residential houses.
      • Stamp duty surcharges make it more expensive to buy multiple properties. You will need to pay more compared to first-time homeowners.
      • Your property needs to be occupied to collect rental income. Finding tenants can be difficult depending on where your investment property is located, and if the tenancy is not filled you have to foot the bill.
      • Maintenance costs and building management eat into your annual rental income. You will never take home 100% profit.
      • You will likely have to use your rental returns to pay a property management company to handle day-to-day operations, unless you want to fulfil the responsibilities of a landlord yourself.
      • You need to already be a homeowner to be accepted for most buy-to-let mortgages, and lenders will set higher interest rates compared to regular mortgages. Mortgage interest is paid off monthly, which eats into your income.

      As you can see, there are several downsides to consider when investing in property. Although there are many benefits, it is not for everyone, and you should discuss this more with a financial advisor to get advice on the subject, specific to your financial situation.

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        Is UK Buy-To-Let A Good Investment in 2023?

        Simply put, we believe buy-to-let properties in the UK are some of the best investment opportunities in the UK. Real estate investment offers potential investors a great mix between consistently high returns and security for your investment.

        Although the property market is not growing as fast as it has in recent months, it still shows great signs of positive growth that is set to carry on for years to come. Capital growth on properties is some of the highest we have seen in decades, and you will likely earn a sizeable return on investment.

        However, buy-to-let investments can prove to be costly, both when investing and in the years hereafter, due to operating costs and the wear-and-tear that homes go through. Real estate investors need to be aware of these costs when investing.

        Talking to an estate agent is a good way of understanding the ins and outs of investing in property, as well as getting an idea of what kind of properties are on the market in your area.

        Here at RWInvest, we have numerous buy-to-let properties on offer to investors, including some off-market developments we have exclusive rights to.

        If you want to learn more about the different developments we currently have available to invest in, try taking a look at our properties page.

        Alternatively, try reading our guide on how to invest £200k for some ideas on how to invest your money in the current market climate.

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        Author

        Dale Barham

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        Dale is a property news and onsite content writer at RWinvest.

        Landlord News, Market & Investment Trends, UK