According to an analysis by Paragon, every £1,000 invested in an average buy-to-let property in the final quarter of 1996 would have been worth £13,048 by the final quarter of 2013.
It is no wonder why we are seeing an increase in the number of people becoming landlords. In the UK alone, there are at least 3 million landlords in control of 5 million rented properties.
There are many different reasons to invest in property (and we will look at this in another blog) but there are own two different outcomes when you invest in property:
- Capital Gains.
- Rental income.
This is the profit you make when you buy a property and later sell for a higher price. In the UK, there is limited supply of housing, and the demand for new homes continues to outstrip the supply of new homes – this pushes up price as you can see from the chart below.Rental income:
This is the income generated from letting out your property to a tenant. Going a step further, you will need to focus on the rental yield of the property in question (please see our blog post on rental yields for more information)
The net rental yield is the net income generated after you minus the mortgage payments, running cost, maintenance and letting agent fees – represented in a % figure. In simple terms, the higher the yield, the better the investment. Click here to view the top buy to let hotspots in the UK, from the highest yield to the lowest rental yields.
Which of the two is the best strategy to follow?
It all depends on whether you are investing for the short term or the long term.
Capital gains is well suited for a short term investment strategy. Although there is a greater risk involved and the strategy could require a higher initial capital investment, most investors are only exposed for a period of 6-12 months on average. We will explore more about these risks in another blog post.
The rental income strategy is suited to investors who are planning to hold the property for a longer period of time. The income you generate will de-risk you against any fluctuations in the house prices however depending on how much initial capital you have to invest, it may take you a while before you start to see a good amount on monthly income from your investments.