Over the last 40 years the idea of buying property for investment, typically residential buy-to- let, has enabled many aspirational investors to leverage their funds and end up with very valuable assets and a good cash flow.
But today, in 2017, existing property investors are thinking hard about whether it is appropriate to add to their portfolio’s, and prospective property investors are wondering whether to take the plunge.
Why should there be such a turnaround in sentiment? Is the property investment boom over? And are their alternative investments which can offer better returns?
Let’s review why the boom in property investment and what the situation is today.
Positive Indicators for Property Investment
From 1970 to around 2000 property prices, in relation to incomes and rental yields, were relatively cheap and prices were rising strongly. This meant that:
1. Capital growth was excellent and provided a huge return on capital
2. Easy mortgages – up to 100% – meant that investors could get involved with very little money
3. As prices were relatively low, rental yields were extremely good
4. Tax relief on mortgages was fully available
5. There was no punitive additional stamp duty
6. ‘Add on’ costs for landlords were low
Fast forward to 2017, and what do landlords face now?
1. Questionable capital growth with the housing market stalled and falling in places like London
2. Difficult mortgages, challenging criteria and too many qualifying requirements. Now you need a serious chunk of cash to invest.
3. Falling rental yields as property prices are so high and renters can’t afford to pay more.
4. Tax relief on mortgages is progressively being withdrawn. The changes between 2017 and 2020 will push some landlords from profit to loss.
5. There is additional stamp duty on all residential buy-to- let property
6. Every year seems to see additional costs heaped on landlords, individually small amounts,
collectively enough to seriously dent your returns.
Bottom line? A completely different investment scenario and one that makes the whole idea of direct property investment questionable.
However, property still offers many investment options and the best of these I’ve wrapped up in the F.R.E.S.H investment strategy. Find out how you can earn 7% to 15% annually with a ‘hands-off’ property investment by requesting a complimentary copy of the F.R.E.S.H Special Report.