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Introduction to buy to let Historically and up to well within the last century, private rented accommodation was by far the most common means of obtaining housing. Councils then became involved in large scale provision of economic housing, and then later more people were encouraged to become owner occupiers, even to the extent of being sold, at a discount, council housing. As government and councils moved in to housing, the rental laws became less attractive to private landlords, but with the sale of council owned property and the shortage of housing for many, the balance has swung back to encourage more to become landlords again. Today well in excess of a million people in Britain own more than one home and some have a large number of houses. One recent study said that more than one in ten involved in 'buy to let' now had 10 or more properties. Property has over time always appreciated, this is not to say there have not been short periods when prices have not fallen back or become stagnant. Where it differs from other investments is that it has real underlying value, and can always produce an income whatever the economy does, as people still need to live somewhere. As often the rental coming in will have paid the mortgage, and provided a profit beside, landlords have done well with three types of income,
By gearing very little of their money was at any point involved, and what was, needed to have been only for a very short period. No one can ever tell what will happen in the future, and even today hot air predictions we see in the media, do not equate to what we see on the ground. There are considerable variations between areas, and changing fashions, areas of under and over supply, but what can be seen is that there is no way, whatever any government did, that sufficient housing can be built to meet existing need let alone future needs. Even if planning laws were abandoned, we just don't have the people with the skills in sufficient numbers to build a lot of houses. At the same time we see far more single households, in some cases as people have decided not to marry so young and in others through divorce, and separation, and as people move from one area to another for work, but leave their family behind. Even if the impossible happened and houses fell to half their current value, which I think everyone would except would never happen, then landlords who have been involved for any length of time will have had more paid off their mortgages and still end up with an asset worth far more than they put in. In practice we expect to see after every sudden drastic rise, a time of stagnation and in some areas correction before prices rise again. However we also see a stagnation in one area causing buying and increases in another area. It has become such a common method of generating wealth that over 75 banks, and other institutions now provide special mortgages for people to be able to do this. Sufficient people now are involved and new purchase accounts for around 70% of new housing developments and a large percentage of the auction and other purchases. The movement is now towards looking at yield as you would with commercial property. Because of this the rental that can be generated becomes the driving factor in prices, and as prices fall in an area, it becomes increasingly of interest to investor landlords and the prices then rise again. Over the last few years with increasing property prices, very many people have become wealthy, even those with no experience or expertise and did the most stupid things, or bought at well above the price they could have, have had this masked by the increases in prices across the board. In the future there will be periods of stability and even some prices may fall back a little which may shake out some of these. If the business model you have established is solid, you are buying at well below current rates, and your plan allows for all contingencies, then you cannot really come to any harm, but we must expect some horror stories as some who do the wrong thing at the wrong time and in particular buy at two high a price or purchase the inappropriate property for the market do get their fingers burnt. There are many real bargains around and within the last couple of years we have properties that are let already, selling at a price where the property cost is completely recovered in under two years and in one case in just 9 months. As in sport, and most areas of business, there is an enormous difference between the performance of different people and groups. So should you get involved, be an independent or a part of a group, use a franchise, or go for courses and books etc. This all comes down to you, the way you want to work and your ideas as to risks against profit. At one extreme you can take gambles, with odds in line with winning the lottery, high rewards if it comes off but also a large risk of losing your stake, while on the other hand you could with a group purchase a solid well researched office building let to a government agency on a long lease, with low returns, but no risk. In between are many shades of risk and profit. Generally the more knowledge you have and the more you can model eventualities the safer the risk will be. The objective of this series of articles is to give you sufficient knowledge to make the decision as to which way is best for you and to give you a basic understanding so that you can get involved whatever route you choose. |
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