Why invest in residential property?


This is the question that we are asked many, many times when we meet people and explain that we are both involved in property related businesses and property investors.  This article is designed to offer our perspective on the reasons why property investment can form a substantial part of anyone’s investment strategy and can provide many the financial freedom they seek.



Financial freedom – leaving the rat race

Without getting carried away like many of the property evangelists that litter the property arena, property can give you financial freedom.  What is financial freedom?  Well, financial freedom is the ability for you to pay for your expenses without the need to work.  This means that your investments cover your daily expenses (hopefully more), allowing you not to work, giving you time to do the things that are important to you.  For example, the eight, ten or twelve hours you used to spend working for someone else to earn your pay, can now be spent with your family, on other business interests or, perhaps working for a charity.  As you do not need to work to earn money, the choice is yours, you are truly financially free.

Financial freedom is a lofty but, achievable goal which many, many people who own property can, and have achieved.  The main principle which underlies financial freedom is the creation of forms of income, other than your wage or salary.  Property is a method of creating income which requires very little work.  Many additional income streams, such as a second job or starting a home business, require continual work – you are only paid when you have completed your shift at work, or produced the output from your business.

With property, you have the opportunity to do very little work and to receive an income, every week, month and year the property is occupied.  For example, once you have bought the property and hired a management agent, the agent will arrange for the rent to be collected, repairs and maintenance to be made and the money (less their fee) to be transferred to your bank account - easy.  The only work you have to do, is carefully select and buy the property and then carefully choose a reliable managing agent.  After you have undertaken these steps, you can receive an income, each and every week, month and year.  It is not uncommon for this income to be in excess of £200 per month, or £2,400 per year.

Changing your lifestyle – more & better holidays

The additional monthly income you earn can be put to a wide variety of uses. If you are interested in achieving financial freedom, you may reinvest the money into other investments, such as buying additional properties.  These investments will increase your weekly, monthly and yearly income, allowing you to buy more and more properties, bringing in more and more income.

Other uses of the increased income could be to reduce your work hours, to give you  more time to spend with friends & family, enjoying your hobbies and pastimes or starting a business.  All this will be done without reducing your income, allowing you to maintain your existing lifestyle.

Alternatively, you may use the additional money to change your lifestyle, to enjoy more luxuries, whether it is more holidays, a new car or more clothes!  Or, the money could be used to pay for further education, to take the course you have always wanted.  Whether, that is to retrain as a tradesperson or to get the qualification you always wished you could, but could not afford.

The impact of capital growth – making £,000s

Up until this point, we have discussed the extra regular income that property could produce for you but, crucially, property offers an alternative way to increase your wealth – capital growth.  Capital growth occurs when the value of the property increases.  It is often described as a paper gain as you can only realise the increase in the value of your property by selling or remortgaging it.

According to Government’s house price index (The Land Registry Index), property in England & Wales has grown by almost 9% per year for the last 10 years.  This percentage increase does no seem a large amount but, if you consider that the average house in England cost £157,000 (according to the Land Registry in January 2009), a small increase in a large figure can produce a substantial increase.  If this percentage increase was to continue for the next 10 years on a £100,000 property, the investor would have made £137,000 in 10 years as the property would be worth £237,000.  If the investor owned the property for 25 years, but the growth was more modest at 5% per year the value of the property would increase to £339,000, giving the investor a capital increase of £239,000.  Imagine, if you owned, 2, 3, 4 or even 10 properties and this happened!  The capital increase would be huge.  If you add this increase to the money from the rental income you can see how lucrative investing in property can be.  The beauty of property is that this whole process is repeatable by simply purchasing more property – once you have learnt how to do it you can easily repeat it.

If you already invest in other products, such as gold, shares, wine or vintage cars, property can not only offer you the benefits above but, can help to diversify your investment portfolio.  The advantage of diversifying your investments is that any large change in one form of investment will have a smaller impact on your overall investment pot.  For example if you own shares and property, and the stock market sees a large fall (see 2003 and 2008 for examples) of 50% but, property increases by 50%, the overall change in the value of your investments would be 0.  However, if you had all of your money invested in shares, your investment portfolio would be worth 50% less.

Property – an investment you can see, feel and control

Many people, including K&G Lettings Limited staff prefer to invest in assets they can see and feel.  Property meets these criteria: you can visit a property, feel it, touch it at any point before and after you have bought it.  This is extremely reassuring, especially when compared to investing in the stock market, where you will be issued a certificate which details the number of shares or other types of investments you have purchased.  This is the most tangible you can make share investing, without visiting the business you have invested in you will never see what is happening – unlike property.

With property investment you also have greater control.  You can determine who rents and manages your property whereas, when investing in shares, you are unable to appointment a new chief executive or to influence the strategies for advertising, pricing and dealing with customers that the business you have invested in implement – you just do not have the same level of control as with property.

Tax incentives – the icing on the cake

Currently, the tax laws in the UK offer the property investor a range of incentives to provide high quality residential property.  This includes but is not limited to:

• Offsetting mortgage interest payments against rental income.
• Repairs and renewals allowance.
• Expenses associated with running a business – stationary, mileage to visit a property, advertising etc.

Using an experienced accountant to complete your accounts from your rental property can save you a substantial amount of money, often, many times more than their costs.  We have partnered with KM Business Services who deal with many property investors and businesses, including ourselves, to offer customers of our management service  high quality accounting services at affordable rates.  KM Business Services  can tailor a package to suit your needs and your budget.  To find out more, you can visit their website or contact one of our staff and we will ensure a member of their, highly trained and friendly staff contact you.

Exploding the myths around rental property

K&G Lettings Limited have had to understand and answer some of the doubts that new investors have had.  We have compiled a list of my answers to the most frequently asked questions below.

You can not make money from renting property

Hopefully, the preceding information has outlined why property can be an extremely lucrative business. Many of the people who have asked K&G Lettings Limited this question have either had a friend who has had a bad experience or read an article in a newspaper or magazine which tries to show property in a negative way.  Many investors are making returns of 10+% on the property investments and often encourage this view.  They do this because it reduces the number of people involved in the business and as a result keeps the competition low.  This allows them to pay low prices for their property and continue to increase their income.  It just goes to show how one persons opportunity is another persons' excuse not to do anything.

I can’t trust anyone to manage the property for me

This is a valid concern but, one that can be easily overcome.  You have to decide whether it is worth spending the time collecting the rent yourself or employing a property management company to do it for you.  You should select the management company carefully but, once you have done this you can monitor the performance of the management company and change to another company if you are not satisfied by their performance.

K&G Lettings Limited offer a high quality property management service at reasonable rates.  To find out more, please read our management pages and contact one of our friendly staff to discuss your needs.

There is no such thing as an honest landlord

There are a rogue minority who give the many thousands of landlords a bad name.  There is no point in comparing yourself to these landlords – people who do not care about their tenants or their property.  The main job of a landlord is to ensure they provide their tenants with a quality property to let.  If you do this you will have a steady stream of good tenants willing to pay the market rent for your property.  This will result in a steady stream of income in to your bank account and a satisfied tenant who stays in the property for many years.  If you employ a reputable management company then your tenants, and most importantly, your property will be maintained to a high level and occupied consistently.  Many of the properties managed by K&G Lettings Limited  have been occupied by the same tenant for several years – providing their owners with a regular income.

No one will lend me the money

This is untrue.  Even at the height of the credit crunch in the mid 2000s lenders were happy to offer property investors a mortgage to buy investment property.  While the criteria required by lenders, in terms of the amount of deposit, type of property and tenant differ, many agree that a client with several property investments is one to have and will lend you the money.

There are many and complex laws regarding property investing

This is generally correct.  The number of laws which govern the letting business can be complex but, the advantage of this is it can put people off owning property.  This means that there are more opportunities for property investors, because people are afraid of entering this area of investing.  Once you have become familiar with the requirements of owning property you will be able to reuse the skills as you add more and more properties to your portfolio.

The use of a professional property management service, such as K&G Lettings Limited  means that you will not be required to learn the complex laws surrounding property investment, and can sit back in the knowledge that you are meeting the strict requirements.  If you do choose to manage the property yourself, you can join one of the landlord associations which will provide detailed information on the different laws which surround property management and investment.

Now is not the right time to invest in property

There is always a market, always a need for high quality property to let.  Migration, the global and national jobs market mean that people are continually moving, changing places.  Often the easiest way to move is to rent a property in your new location.  There are also many people who can not afford to purchase a property, these people need somewhere to live. This means there is always demand for high quality residential property.  If you can meet this demand, then your properties will be sort after and your income maintained.

There will always be markets where the number of people looking to buy a property there will push up prices.  This may have the positive impact of increasing rents meaning investors can still get the return they require.  However, popular places in high demand may not always produce the returns desired.  Selecting an area which meets your criteria is the most important fact to remember when investing.  Ensure you are happy with your investment decisions.  The next section will outline an area K&G Lettings Limited  feels is a great place to invest in property – Hull & East Yorkshire.  However, as we have warned, the investor must be happy with their investment decision and independently verify our conclusions.

Hull & East Yorkshire – why it is the right area to buy property

We have outlined why we think property investment is superior to any other form of investment and why we think you should consider it as your investment vehicle.  The property and rental markets in areas of England are extremely different, with varying house prices and rental income depending on the area and type of property.  Choosing an area of the country to investment means you have to weigh the differences between capital increase and rental income.

Hull & the East Riding offer the investor a range of property which can both provide good monthly rental returns and capital appreciation.  In terms of monthly income, many of the properties in Hull yield nearly 10 per cent.  Yield is a metric used to determine how much income (gross) a property provides compared to the value of the property. For example, a 10% yield in Hull means that a property can bring in £3,000 of rental income and cost £30,000.  Contrast this to the South East where a typical house costs £150,000 (if not more) and the rental income is approximately £7,500 the yield is 5%, half that of the yield of properties in Hull.

In terms of capital appreciation, Hull had some of the fastest growing house prices between January 2002 and January 2008, increasing at an average of 15% per year.  This means that houses have grown in price at a faster rate than almost any other area.  In addition, over the recent decline in house prices which occurred between January 2008 and January 2009, Hull (12%) has seen a smaller decline in house prices than England & Wales (15%).

You can see that Hull is one of the most exciting areas for property investment in the UK.  If you would like to take advantage of this superb area for property investment using a reliable, professional and high quality property investment and management company contact K&G Lettings Limited  NOW.  Contact us page.

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© K&G Lettings Limited 2006-2013. All rights reserved. Never rely exclusively on our standard answers and general content. Always do your own specific research and seek professional advice. Always have the entire facts and all documents to hand before making any decision.

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