I’ve tried really hard this week not to mention the dreaded ‘B’ word, but I think I’m going to fail today. I do apologise.
I’m sure you don’t need me to tell you that the current shenanigans are playing havoc with business, the markets, and folk’s everyday lives…
But have you noticed that it’s putting a real damper on the great British property market as well? Anecdotally, friends are telling me that nothing is shifting at the moment, and the Bank of England have said that in a worst case scenario house prices could slump by as much as a third. Ouch.
The Royal Institution of Chartered Surveyors (RICS) also recently reported that enquiries, sales and instructions are all declining.
Apparently, it is the most downbeat report since records started in October 1998.
And it’s all down to the uncertainty surrounding Brexit. Damn, I said it — sorry.
So, is this the final nail in the coffin for our national obsession with buy-to-let?
After all, if you are going to put up with all the hassle, costs, and the raft of legislation associated with renting out property, you would at least like to think that there was going to be a healthy profit at the end of it.
And if house prices are declining, that’s not very likely.
But I think my answer would be no. There is still life in the old property dog yet — he’s just limping a little at the moment.
And the reason for my positive outlook is quite simple.
We live on a small island, with a big population, and not enough houses. Successive governments have pledged to build more, but we are still falling way short of where we need to be.
Recent research suggests, that in order to meet demand, England must build 340,000 new homes per year until 2031. And that number is significantly higher than the government’s current estimates.
So, to my mind, it’s a simple case of supply and demand that will keep prices up in the long term. Add in the low interest rates that we can expect for the foreseeable future and record employment levels, and I think property will remain a good investment for many years to come.
And that means, that the current uncertainty could well be turning up some buying opportunities in the property market. That’s clearly of interest to long-term investors like ourselves.
So, am I rushing out and buying a buying a bunch of rental apartments from my Brexit-fearing fellow citizens? Err, no.
And the reason — I have been a landlord before.
It was a boatload of hassle having to deal with building maintenance, paperwork, and difficult tenants. Now don’t get me wrong, there were plenty of decent ones, but I’ve had my fill of broken boilers on Christmas eve, drug dealers, rent dodgers and people ringing late at night to complain that the neighbours were having sex. I kid you not.
On top of that, the government really don’t want you to invest in buy-to-let anymore.
First up, in 2016 they introduced an additional 3% stamp duty on the purchase of second homes and buy-to-lets. That means that the stamp duty on a £200k flat jumps from £1,500 for a regular buyer, to £7,500 for a buy-to-let landlord. Sound fair?
They are also currently phasing out mortgage interest tax relief for landlords with buy-to-let mortgages. Historically, you could deduct the interest paid on your mortgage from your rental income. That had a big impact on your annual tax bill, especially if you were on an interest only mortgage.
However, over the last couple of years, this perk has been gradually withdrawn and by next year it will have been replaced with a far less generous tax credit. That is going to impact a lot of landlords.
Add into this, new rules to ensure that your property has a minimum energy performance rating of ‘E’ (or risk a fine up to £5,000), new requirements to obtain permits for buildings rented to multiple tenants (HMOs), and legislation that says landlords need to check if their tenants have the right to live in the UK, and you get the picture.
And did I mention the hassle of dealing with tenants…
I also don’t feel like I have the expertise to assess a particular geographical area (London looks dodgy) or the suitability of a specific type of property — apartment, house or student accommodation, for example.
So, I like the idea of owning property as a long-term investment and there appears to be a potential buying opportunity at the moment. But, I don’t want all the hassle and expense of directly buying rental properties.
Is that possible?
Well yes, I think it is.
In the last couple of years, I’ve become a big fan of crowdfunding property companies such as Property Partner, The House Crowd, Brickowner, Property Moose, and the like.
They all have slightly different models, but essentially, they use their expertise to hunt out what they consider to be good, well priced, property investments.
Then, as an investor, you pledge a certain amount. That is lumped together with all the other investor’s money and used to buy the property via a specially created limited company.
You receive shares in the company and are paid the rental income as dividends.
If at any point you want to sell up, the best platforms provide a secondary market where you can sell your shares to other investors. There also tends to be a fixed term exit mechanism, if investors wish to use it.
The great advantage of this approach is that you can start with a relatively small investment. You can also spread your money over a number of different types of properties in different parts of the country.
I own a share of student accommodation in Leicester and Newcastle, some fancy apartments in Huddersfield, a Sainsburys in Leamington Spa and even a converted fort on the Isle of Wight.
It’s all been expertly sourced, purchased and managed. And I have not had to lift a finger beyond making the initial cash transfer and paying a small fee.
And to top it off, I just received an email from one company inviting me to invest in a fund specifically designed to hunt down, and invest in, Brexit-distressed properties. They are aiming to return at least 10% per annum after fees.
Now, that sounds like my type of property investing.