Expanding your rental portfolio
As a private landlord you’re helping provide homes for an ever-increasing number of tenants across the UK. Whether you became a landlord because you decided not to sell a former family home, or you deliberately chose to invest in property, your role in the property market is an important one.
If you already have one property you’re renting out, you may be looking to invest in more. But what’s the best way to expand? Would particular types of property suit you better than others? The sort of property you buy will depend on your circumstances and whether you’re investing for good long-term capital growth or improved rental income. Not all properties will provide both.
Here, haart has put together a guide to helping you take the next step in building and expanding a successful rental portfolio, from the benefits of certain properties, to coping with challenges in the market.
Have questions? Get in touch.
A changing market
It’s widely agreed that the private rented sector is set to become even more relevant in the provision of homes, and that ultimately means that whilst we are likely to see more ‘accidental’ landlords join the sector, this will be alongside more deliberate investment purchases from existing landlords.
Therefore, if you’re planning to strengthen your investment portfolio to meet this anticipated growing demand, how do you consider which property you would prefer to invest in?
The benefits of investing in a family home
Studies have shown that, as of 2018, 40% of ‘millennials’ (those born between 1980 and 1996) were living in rented housing by the age of 30, twice as many as "generation X" (born between 1965 and 1980). As this so-called ‘generation rent’ matures, the demand for good quality rental homes will naturally switch to include homes suitable for growing families. Desirable properties will often be located within the catchment area of highly respected schools or be close to transport links.
The benefit of investing in quality family homes in good areas is that they’re likely to be rented quickly, and to tenants who will be looking to stay in their home for longer. Families who have selected a property because of its location to their children’s school are likely to want to stay throughout the duration of their children’s education. They are also more likely to treat your property with care and respect.
The trendy apartments the Millennials choose in their twenties may not be suitable for growing families. Instead, these tenants will be looking to live in safe, family friendly neighbourhoods. Homes close to good schools, and features such as gardens and separate dining rooms will be higher up on their wish list.
With supply sometimes limited, once a tenant has found and secured their perfect home, they’ll have little desire to move regularly. As a generation that has spent much of their adult life renting, they’ll be keen to protect both their deposit, and their credit record, so they will take care of the property.
A carefully selected investment into a family home is likely to enjoy positive property price growth over the longer term. Therefore, when you are in a position where you would like to sell, then you’re likely to have an asset that has been well cared for and has grown in value.
The benefits of investing in a student property
Many cities across the UK have a growing student population, many of whom need somewhere to live. Although, landlords who choose to specialise in shared student accommodation must adhere to specific licensing requirements, students can prove to be very good tenants. In most cases, students secure their accommodation well in advance of the new year academic starting, which reduces the likelihood of void periods. Also, student rents are often guaranteed by parents and this can lessen the chances of arrears.
Indeed, the appeal of the UK’s excellent quality Higher Education to overseas students also ensures there’s a demand for high-end homes close to universities.
The National Landlords Association has plenty of advice for renting student properties and other important rules and regulations.
Should you consider new build properties?
After years of slow housebuilding rates following the 2007 - 2009 recession, developers up and down the country are now accelerating the rate at which they’re building homes. The volume of new-build starts stood at more than 40,000 per quarter in 2018, up from less than 20,000 per quarter in 2009.
Incentives such as Help to Buy are helping property developers secure sales, however a combination of the upfront costs and affordability mean that not every property can be purchased privately. That’s why some developers offer properties exclusively to investors. The additional benefit for developers is that they can reduce their exposure to some quite hefty marketing costs, which can mean they’re sometimes willing to offer exclusive discounts to private landlords.
Tenants favour new-build homes, particularly as they often come complete with brand new fitted kitchens and bathrooms, triple glazed windows and fitted flooring. Many key appliances such as the boiler and heating systems are guaranteed. Also, in some cases, brand new homes can also secure higher rents. Other benefits include:
- Chain-free purchase. No chain to depend on ensures confidence in the completion date. This often allows the property to be marketed for rent in advance.
- Ready to move into. Every room will have been freshly decorated and there’s no furniture to work around.
- Adherence to Minimum Energy Efficiency Standards
- From April 2018, new tenancies can only be offered on homes with a minimum energy efficiency rating of E. However, most new homes in the UK are built to far higher energy efficiency standards than older homes, meaning there will be no improvements necessary.
- Housebuilder deals. Many developers are often keen to sell to landlords as they are usually experienced buyers, without a property to sell.
- NHBC Warranty. Almost 80% of newly-built homes come with an NHBC Warranty. This not only ensures the property has been built to a specific set of standards, but it also provides crucial insurance for physical damage and any breaches of the building control.
Investing in an HMO
The private rental sector remains on a growth trajectory however it is universally accepted that the number of new homes being built is lower than it needs to be. The reality is that some larger properties are often converted into shared homes. If you’re planning to increase your portfolio, would investing in an HMO suit you?
What is an HMO?
Where there are three or more people (that are not family) sharing a property, these properties are classed as Houses of Multiple Occupation (HMO).
Pros and cons of investing in an HMO
- Student rents guaranteed
One of the most common types of HMO is student accommodation. Properties close to universities are very popular for groups of young people wishing to share a home. As students don’t typically have an independent source of income, they usually have a guarantor guaranteeing their rent will be paid.
- Good yields
Shared living is attractive to tenants seeking a degree independent living, made affordable as bills are split between everyone. However, because an HMO often makes best use of room, they often produce impressive yields, sometimes as high as 10%.
- Popular with young professionals
A further attraction for tenants is it often means they can afford to live in in a city centre for a fraction of the cost of renting a place of their own. This is appealing for young professionals, particularly if the lower living costs help them to progress their career.
- High turnover of tenants
A shared house is seen as a less permanent base for some residents. This means it’s likely that you’ll see a higher churn of tenants than you may see for other types of rented property.
- Deposit protection
As a landlord, you still have obligations to place your tenant’s deposit into an official Deposit Protection Scheme. However, as tenants have access to shared areas, this can make the negotiation about the return of a deposit at the end of an individual tenancy more complicated.
- Licensing Conditions
Where a property is class as an HMO, it needs to be licensed by the local council. A fee is usually payable, and the property needs to be inspected to ensure there are no health and safety risks before the license is granted. The landlord or their agent must provide the council with copies of annual gas safety certificates, conduct electrical safety tests and install smoke alarms on each floor. Any rooms that have a coal fire or wood burning stove must have a carbon monoxide alarm. Breaching licensing conditions is a criminal offence and the penalties can be high.
How else can I expand my rental portfolio?
It’s possible to buy an ex-local authority property for a considerably lower price than other properties in the same area. Ex-local authority or former housing association properties in good neighbourhoods tend to provide better yields than privately built homes because they cost a lot less to buy but still command decent rents.
Local authority-built properties tend to accrue in value more slowly than others in the same area, so you might not make as much on the price itself, but the high rental yields make it a better option if you want to sell it on after a few years.
Research has shown that high demand for studio flats is consistent. This type of property can also have a higher rental value and present a simpler letting process.
Why not pop in to one of our branches (we have over 100 nationwide) and talk through your options with a member of our team?
Are you looking to sell a property? Get a free haart valuation today!