Member Article

Property: to invest or not to invest

As the private rented sector booms many people may be considering swapping their low-interest savings accounts for a potentially higher return on investment by purchasing property.

At KIS Lettings landlords can come to us for advice and guidance when they are looking to purchase a particular property. We’ll help wherever we can with insights into the local area, potential yield, improvements and maintenance costs and tenant demand.

However, every investment is a gamble and before making the decision to invest in property to let, it might be worth considering the following:

Invest because…

1.Long term returnThe return on investment on residential property over the last 100 years has been better than any other asset class including commercial property, equity or bonds.

2.More is betterHolding a portfolio of residential property spreads the risk as each asset is relatively small.

3.Fairly secureEven in hard times, people will make sacrifices in other areas to ensure that they can pay the rent.

4.DemandThe population is growing at a fast rate whereas house building is at its lowest since the 1920’s so supply and demand is very positive.

5. Secure for the futureGood quality residential properties will last indefinitely if they’re well maintained.

6. Renting - the new buyingFactors such as high employment mobility, continued restrictions in the mortgage market plus the high transaction cost of buying (deposit, stamp duty, etc.) encourage rentals. Tenant demand is high.

Think twice…

1.Loosely regulatedThe legal structure surrounding landlords and tenants has only been in place since the Housing Act of 1988 - before that it was virtually impossible to let residential properties on a commercial basis. It’s an immature industry but with the right agent you can protect yourself and your tenant.

2.Cowboy agents Typical landlords own one or a handful of properties managed by a third party agents, some good (like KIS!), some bad - giving rise to tales of bad experiences. There’s a lack of trusted brands in the market and KIS Lettings is working to change this.

3. Time and effortTo succeed you need to have a passion for customer service and be prepared to spend time managing the property let. How much time depends on whether you decide to employ a letting agent to manage the property for you.

4.Small but steady returnThe yield is low, anywhere between three and 10 percent gross and you do need to allow for management and other costs, but historically it has proved to still be the best hedge against inflation of any other asset class.

Next week I’ll be looking at the do’s and don’ts of investing for all those fairly new to the private rented sector and those considering a move into the market after weighing up the pros and cons above.

Ajay Jagota, MD

KIS Lettings

This was posted in Bdaily's Members' News section by Ajay Jagota .