Can you have your cake and eat it?

Jun 13, 2022

Can you have capital growth and high income from one property? This is the ultimate have your cake and eat it scenario. Have your cake and eat it, implies some kind of greed but when have you ever bought a cake and thought I’m not going to eat this? Property is a win-win situation, you get to financially benefit and you provide homes for those that need them.

The traditional buy to let property was the main stay of the investor looking to get better returns than in the bank. However, house prices have increased, the deposits needed have increased but the rents haven't increased in the same way. Whereas house prices on average double every ten years, rental prices don't typically follow the same trajectory. According to a report and index from Office of National Statistics for March 2022, UK rental prices have increased by 12.9% since January 2015. Using data from Office of National Statistics for November 2021, the UK average house price rose by 41.98%. House prices are growing almost 4 times faster than rental income.

So the returns on buy to let properties have dropped accordingly.

In addition, the rules and regulations introduced recently, for buy to let properties and the ability to obtain mortgages. With the introduction of the Prudential Regulation Authority (PRA) in April 2017, landlords now must demonstrate that their rental income covers 125% of their monthly mortgage interest payments. This is to stress the mortgage payments, if rents increase and you would need spare income to cover extra interest, voids, and arrears. Previously, this wasn’t the case. So even if you could afford the property, it may not be possible to get finance for it if the rent is not high enough.

Investors are now looking for higher cashflow and value added strategies. This could be through developing the property, doing a refurbishment or even converting it to multi let accommodation like HMOs or serviced accommodation (think Air bnb). There are definitely still opportunities out there for those looking to invest in property – you just need to be creative and use the right strategy to make it successful.

There are many reasons why traditional buy-to-let properties don't work anymore:

- Property prices have increased, meaning deposits needed have increased and rents haven't increased in the same multiples.

- The rules and regulations around buy to let properties have changed recently, with landlords now having to demonstrate that their rental income covers 125% of their mortgage interest payments, meaning that refinancing has become trickier, and cash is getting stuck/left in properties

- Investors are now looking for higher cashflow and added value strategies

- New taxation rules, where investors can no longer claim all of their mortgage interest back have made some properties and even whole portfolios unprofitable.

However, interest rates are so low, investors can get better returns from property than they would if they were just putting their money into a bank account at 0.75% interest. According to the Homelet Rental Index, the average UK rent at end of March 2022 is £1,078 a month or £12,936 per annum. Given the average UK house price is £282,753 from the Halifax House Price Index. That would mean the average yield is 4.57%, which is 609% better than bank interest rates.

So smart investors are still looking at property to invest but to have their cake and eat it, they are looking to other high cashflow strategies than single lets. With high cashflow each month, you are having the cake and eating it


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