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Investment in residential real estate can provide investors with a path to capital returns and passive income.
Research shows that, in spite of regulatory and taxation changes, property investment is set to deliver significant returns for landlords, with the average UK property estimated to generate a total rental income of £369,495 over a 25-year period.
While investment in residential real estate has long been a popular choice for investors, owning buy-to-let property can prove an arduous and time-consuming task. Investors who choose not to employ a third party to manage their property can find themselves personally responsible for day-to-day maintenance and upkeep, not to mention finding tenants and handling this
relationship. They do however, avoid the cost of third party property maintenance, which could be between 8-12% of the monthly rental value, plus expenses.
To avoid incurring this expense and for the sake of personal convenience, it’s common for prospective investors planning to manage their own properties to confine their search for a buy-to-let property to local areas they know well. Having the property within close proximity of their own neighbourhood makes it easier for the investor to manage the property themselves. It is simply not feasible to travel long distances to deal with a leaky tap on a Sunday afternoon, or to coordinate a local handyman to fix a broken dishwasher in the middle of a busy week. It is also likely that they will already be familiar with local tradesmen, making it easier to manage those maintenance gripes that may occur.
Even investors planning to work with a third party letting/management agency more often than not look for a property in their local neighbourhood as they have a better understanding of the local property market, especially if they have undergone valuations for different properties in the area when it came to their primary residence.
Branching out geographically to bring rewards It is no surprise then, that many investors prefer to stick to their local areas. However, they could be missing out on opportunities to increase returns by branching out and looking at real estate in higher-performing locations.
Within the UK, many property investors have gravitated towards high value areas like London and the South East, but with house prices in London predicted to fall by 2% in 2019, investors may be wise to look further afield.
Research by Savills predicts that house prices will increase fastest in north-west England, where there is predicted to be an average growth of 21.6% over the next five years. Similarly, house prices in the north-east are expected to rise by 20.5% by 2023. Rental price growth is also forecast to increase, with areas like Colchester and Northampton experiencing rises of 3.41% and 2.38% respectively.
Indeed, the top five Buy To Let postcodes for investors are Colchester, Northampton, Leicester, Luton and Birmingham, according to Savills. If investors are open to diversifying their search to look beyond their immediate geography, rewards could follow.
It begs the question, is there a way to tap into the benefits of investing in property further afield than your local neighbourhood without having to put up with the inconveniences?
Investment models now exist that are capable of transcending geographical boundaries and offering investors regular returns without the incumbent management and maintenance bother traditionally associated with owning buy-to-let property.
An example of this is an investment structure that treats property in a similar way to stocks and bonds, meaning that investors can invest in individual properties of their choosing without having the inconvenience of personally sourcing and managing property. They still enjoy rental yield but without the associated hassle of hands-on management. All this can be done via digital means, eliminating the need for time consuming and expensive travel, research and maintenance costs.
This model means that investors are able to access a broader range of property markets all over the country, without being restrained to the areas that they are already familiar with.