There has never been a better time to build up your portfolio of real estate investments than now, during a surge in the housing market. For the past few years, it has been important to monitor the natural increase in home and rental prices. In the entire UK, there have been record increases in the number of properties granted this year. The current hotspot for real estate investment is in England's north-west. According to Rightmove, private rents in Manchester have jumped by an astounding 23.4% over the last year. Additionally, the average advertised rent outside of London has increased by 11.8% since last year. The effects of this surge have also increased buy-to-let landlord yields, particularly in the north-west. The M14 zip code in Manchester has an astounding 9.6% average yield. L4 in Liverpool and LA1 in Lancashire both have respectable 6.9% rates. Investors should focus their attention on the north-west now that its potential is clear. The average monthly rent in the north-west increased from £890 in July 2021 to £1127 in July 2022, according to Home Let. These modifications reflect the buy-to-let (BTL) market. The BTL market has reportedly grown to a record-high 8.7 million properties, according to Buy Association. Landlords in the UK purchased 42,980 residences in the first quarter of 2022, totalling £8.5 billion in real estate. This demonstrates the expansion of the private rental market and the chance to profit while the market is experiencing such a meteoric surge.
The rental market is often busiest around the conclusion of the summer. The commencement of the academic year in September is a major factor in this. The BTL market is stimulated by students. Prior to the start of their classes in September, a property must be secured. 40% of UK students, according to the National Student Association (NSA), prefer to live in homes with private landlords. Students now pay an average of £148 per week in rent, up from £146 the previous year. This amounts to an increase of roughly £87 per year given that the typical student lease runs for 10 months. Therefore, based solely on student housing, private rental in the BTL market is a wise and beneficial investment. A safe way to build up property assets is through a consistent rise in monthly rent and the flood of students looking for housing during the academic year. Applying this strategy to property investments in the north-west region of the UK could generate exponential profits given the region's obvious growth. While BTL is well-known for being one of the most well-liked and secure ways to invest in real estate. There are others with a chance to produce far greater returns. This article will concentrate on these various approaches and explain why they can be fully utilised in an industry that is currently booming.
Real Estate Investment Trusts (REITs) are a type of investment strategy that let you participate in commercial real estate without having to actually buy and manage the properties. Investors looking to diversify their portfolios are becoming more and more interested in it. Companies that own and operate income-producing real estate, such as apartments, warehouses, shopping centres, and hotels, are known as REITs. The IRS has requirements that REITs must adhere to. These requirements are:
· Return a minimum of 90% of taxable income to shareholders
· Invest at least 75% of total assets in real estate or cash
· Receive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
· Have at least 100 shareholders after the first year of existence
· Have no more than 50% of shares held by five or fewer individuals
There are three different types of REITs that are categorised by their investment holdings:
Equity REITs: These REITs are in charge of all aspects of property management. They own the underlying real estate, collect rent checks, maintain it, and reinvest in it.
Mortgage REITs: These, unlike equity REITs, do not own the underlying property. Instead, they possess debt securities secured by real estate. When a mortgage is taken out on a property, for example, this iteration of REIT may purchase the mortgage from the original lender and collect monthly payments over time. As a result, revenue is generated through interest income.
Hybrid REITs: These are a combination of equity and mortgage REITs. These companies own and run real estate properties, as well as commercial property mortgages.
Investing in REITs can be done through an Exchange Traded Fund (ETF), which allows you to invest in a group of assets in a single transaction, or by purchasing shares in the REIT firms themselves. The value of REITs rises in tandem with interest rates. The property market's economic growth will significantly improve the value of REITs, enhancing your earnings. REITS are frequently stable in terms of income and market performance, allowing you to generate a passive income. Diversification of your portfolio is possible with REITs because they enable you to explore a global market. During property market surges, REITs trend upwards as well, and with the versatility of a diverse portfolio, the passive income earned could be substantial depending on the market success of the places invested in. REITs are also known for providing large yields at low rates, making them a cost-effective investment alternative. Custodian REIT,
one of the leading REITs in the UK, has a net initial yield of 6.10%.
Build-To-Rent (BTR) is a thriving investment market sector. While BTR was considered a fringe investment strategy a decade ago, it is now making substantial inroads into the mainstream of property investing. According to Savills
, the BTR market saw a record high £1.6bn investment in Q1 2022, beating the previous record of £1.2bn last year. According to a separate research conducted by the Buy Association
, the number of houses being built has increased by 44% in the last year. In Q2 2022, the total number of BTR properties finished, under construction, or in planning is up to 237,000. A record amount of 45% of local governments now have BTR projects in the works. BTR is being hailed as the fastest expanding investment subsector.
In order to capitalise on the sector's exponential growth. Look outside of London, since places in the Midlands and North are witnessing rapid lettings with minimal voids. According to EG
data, the average number of days a BTR home sits on the market in areas such as Manchester and Coventry is 28. 32% of BTR tenants earn an average of £19,000 to £32,000 per year from these investments according to Buy Association
. The expansion of the general property market, combined with the rise of BTR, can result in very lucrative chances in the north-west of England. Now is the moment to make this investment because land for BTR projects is still available.
Houses in Multiple Occupation (HMOs) are another investment strategy that aims for high tenant demand, high yields, and low vacancy rates. According to a BVA BDRC
analysis, HMO lettings presently have the highest yields at 7.5%, which is more than double the average for typical BTL homes. HMOs are often houses or flats shared by multiple tenants who rent their rooms and the property's social amenities separately. Since the pandemic, there has been an increase in the demand for HMOs, particularly among students, who want to obtain shared housing with acquaintances close to their respective universities and city attractions. HMOs require a license to be rented out with multiple occupation, more details can be found here.
A purpose-built student accommodation (PBSA) is a private shared residence designed particularly for students and does not require an HMO licence. These are in in high demand at this time of year as students look for housing for the new academic year. International students are PBSA's primary market because they require this convenience when entering a new country. According to Studying in UK, the number of overseas students enrolled in higher education in the academic year 2020/21 was 605,130. COVID-19 constraints on face-to-face teaching affected this year, so expect that number to climb even more rapidly in the coming years as restrictions lift. This can be a great opportunity to invest in HMOs or PBSAs for the oncoming influx of new international students.
Novyy is a Community Investing Platform that enables individuals to invest in UK Buy-To-Let, Leading Real Estate Private Equity Funds, and Premium Homes across Europe with as little as £10,000. Novyy users enjoy seamless digital investing like never before, in opportunities that were earlier unavailable to most individuals. This piece should not be construed as tax advice. Please refer to your tax advisor before making any decisions on owning properties through Limited Companies.