With recent research suggesting that foreign investors are focusing on residential properties in London, and house prices that are only continuing to rise across the UK, this is the perfect time to consider residential property investment.
What is the residential sector?
The term 'residence' is usually classified by how the property is connected to neighbouring residences and the surrounding land.
Attached dwellings can either be an apartment, a house of multiple occupancy (HMO) - where each floor is a separate apartment or unit, a terraced home in a continuous row of shared walls, or a multi-unit freehold block (MUFB) where common grounds are shared jointly by the dwellers.
There are also semi-detached properties (two units with a party wall), single-family detached homes and portable dwellings such as mobile homes and houseboats.
What should I be looking for?
Location is paramount. You will need to specifically identify target tenants and ensure that the location will meet their needs.
For example, investing in small flats near railway stations will attract young professional tenants, larger shared homes close to universities are more suited to a student crowd and families usually want good transport links and to be within close proximity to shops and schools.
Prime locations such as central London will also hold up well against property value fluctuations, but also note that a premium price tag comes with them.
Consider future 'hot spots' that may be attractive to both tenants and prospective buyers by checking if property values are rising at an unusual rate in a specific area.
Past studies have revealed that older or 'period' properties tend to hold value better than new-builds.
Should I invest?
Demand is currently outstripping supply across the UK, meaning that rental returns are remaining high, between three and six per cent.
It is important that you do not borrow more than you can afford. There will be strict lending rules, but if you cannot fill your homes with tenants, have lost your job, or have a long-term illness, you will still need to pay back mortgages monthly.
Also, consider long-term financial costs. You can specify in the tenancy lease who will be responsible for general repairs and maintenance, but generally, the property owner will have to fork out the bill for structural or exterior issues.
Am I suited to residential investment?
Financing and finding tenants can be a stressful business, especially if you are leasing the home out. YouGov's Landlords and Mortgages report highlighted that many landlords are ignoring the additional costs of buying residential property, such as insurance, agency fees, mortgage interest payments, repair and maintenance, and potential arrears when the tenant cannot pay the rent.
For some, residential investment becomes a full-time job - and while it's a very profitable venture, it's worth weighing up whether you can invest the time, money and effort too.
