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Long term property investment requires an understanding of when to buy and when to sell investment properties. This knowledge can mean the difference between meeting your expectations for your return on investment, or not. In this post, we will be examining the long-term view of property investment, taking into consideration trends and shifts in the housing market cycle.
What are The Financial Benefits of Investing in Property?
Investing in property can yield significant financial benefits in the long-term, and help you to achieve financial independence. Buy-to-Let investments, in particular, can yield a reliable source of income, if your portfolio is set up in the most tax-efficient way. While your tenants pay rent, the investor can enjoy a steady capital yield on your investment. Over the longer term, the rental yield is likely to increase too, so your turnover will increase alongside the capital growth.
In the long term capital growth can be substantial, making this a key driver for a long-term strategy. Alongside this, an investor can set aside a proportion of the rental income for further investments depending on the shorter-term strategy.
Careful management of the property, alongside the wise investment of rental income, can result in a steady increase in wealth over the long term. With this in mind, it is easy to see the clear financial benefits of a long-term, well-thought-out property investment strategy.
Tax Benefits
Short and long term property investment can enable you to take advantage of many tax benefits when consideration is made to tax liabilities, allowable expenses, and costs. The correct structure for a property portfolio will enable these cost savings and tax benefits to be realised.
Buy-to-let investments can provide tax-deductible costs such as mortgage costs, agent fees & maintenance to name a few. Landlords may also be able to deduct the cost of any furniture bought for the property which can offset their tax liability. With careful planning, it is possible for property investors to achieve a positive tax position from their property investments. However, this can only be achieved by putting the correct structure and financial instruments in place. Not doing so can easily result in a large tax liability, something that accidental landlords often find themselves trapped by. Knowledge is key, and taking the right professional advice is vital.
The Housing Market Cycle
The housing market works on an 18-year cycle. This cycle does not work in a nice smooth upward growth curve. There will be rises, falls, and crashes along the way. But over the course of the full cycle, property values will increase.
To reap the maximum rewards of this cyclical trend, investors should take a long-term ‘buy to let’ view on property – investing for minimum periods of 10 to 18 years will allow for a far larger return, especially when coupled with the right strategy and knowledge of the wider trends in the property market.
When to Invest Your Money
Timing is an important factor to consider when determining when to invest in buy to let. While some investors may view buying in a buyers’ market as a good approach, others may believe it is best to buy when there is a more established higher demand in the market.
Timing will be governed by market conditions, the type of investment and strategy that you have in place, and the level of risk that you, as an investor, are prepared to manage.
Choosing the Best Location for Property Investment
It’s important to research and understand which areas might be suitable for a buy to let investment. Factors such as the local property market, local amenities, and transportation links will all have an important role. Inward investment and economic performance are also crucial considerations.
Review rental prices in the area you intend to invest in and compare them to local sale prices. As prices are constantly fluctuating, you should conduct thorough research on the current market trends in your preferred area to ensure that you make an informed decision. Long term property investment will require you to look at future forecasts as well to see where the market will be in 5, 10, 15 years or more.
However, investors must keep an open mind to the areas that are suitable for investment. Your preferred area may well present good opportunities, but you should base your decision-making on hard data and facts, not just your personal preference for an area, or its proximity and convenience to you. This can be a major pitfall and one that is easy to fall into. If the facts and data don’t stack up for your preferred area, look elsewhere.
Where is the housing market priced well for long term property investment
Typically, locations that offer a positive economic outlook, are attracting inward investment either from the government, private sector or both, reliable amenity base, good employment prospects, and relatively lower crime rates are preferable, as these factors will contribute to sustained rental demand and ultimately a better return on capital for the long term property investment. Property investors should also take into account current market conditions and future predictions of how house prices are expected to perform
Areas with a strong economic forecast and a history of steady property market performance should be considered to get the most out of a long-term property investment.
The North East, North West and Midlands are all forecast for strong growth over the next few years compared with the rest of the UK, and during 2023 have remained a strong proposition for property investors. Property prices have remained highly competitive during 2022 and 2023, with strong rental yields alongside housing market performance.
Economic growth in these regions is forecast to remain strong with major investments through the Northern Powerhouse and Midlands Engine continuing to pump finance into their economies, creating jobs and the need for high-quality housing.
Is Long Term Property Investment Worth It?
The housing market works on a cyclical basis, so can sometimes be unpredictable from a short term view. So committing to a long term property investment strategy can help to minimise the risk of losing money on property, which can happen in the short term. Over a longer period of time, house prices tend to increase in value and this opens up the potential to make significant returns on any capital investments made.
Long-term property investments generally offer better stability than other investments, making them ideal for those looking to achieve more consistent returns. Consider current rates of inflation and the return on investment of cash at the moment, for example.
The Current Financial Climate
Property remains one of the most reliable investments, despite the current turmoil in the housing market. Political events in 2022 have caused a ripple effect through the housing market with values falling, and increasing interest rates have made the cost of mortgages more expensive. At the time of writing (August 2023) this situation is beginning to ease, with some mortgage costs beginning to fall. During 2024 house prices are forecast to begin rising again, with steady growth over the next 5 years.
There is a consideration for property investors to make between lower property prices and higher mortgage rates whether long term property investment is profitable, or not. However, this is nothing new. This is part of the housing market cycle, where mortgage rates have gone from record lows to rates that some people will never have experienced.
We’ve already discussed the importance of carrying out suitable research, and that due diligence is key here. A good place to start is to ignore everything published in the media and speak to property professionals, mortgage brokers, and others to put together the facts and necessary data to help you make credible, reasoned decisions.
Staying in the Market & When to Sell
Deciding when to sell an investment property is a tricky question since it involves evaluating the current state of the housing market and considering the benefits and risks associated with the sale.
Ultimately, the answer comes down to how long your strategy requires you to retain your property or properties.
If you have a long term property investment goal that you are measuring over a number of years according to the housing market cycle, it is advisable to maintain a passive stance and sit tight during any short-term fluctuations in the market.
However, if you have achieved your long term property investment goal and are now looking to sell off your property portfolio, then it is time to begin your examination of current market conditions to assess whether now is the right time to sell. A strong business strategy should allow for market fluctuations when you are due to sell so that you can maximise your profit upon sale.
Remember to calculate any Stamp Duty, Capital Gains Tax, and other liabilities that property sales may attract.
Additionally, it is essential to analyse any associated costs such as stamp duty or capital gains tax, which may affect the likelihood of a profitable sale. Developing a long term property investment portfolio involves strategic planning and a comprehensive understanding of the market, and if done correctly, can have stellar results.
Next Steps
Not only does the team at Hawkhurst Invest work with investors at every stage of their investment journey, whether short term or long term property investment, and from first time to seasoned professionals, but we source high quality opportunities for investment as well.
To find out more about current opportunities, and the range of services and partners that we work with to help you achieve your financial freedom through property investment, contact us to arrange an initial consultation.
