Prime rental property investment can take many forms, from lavish and luxurious accommodation commanding tens of thousands of pounds per week in rent, to more modest but well-appointed premises in super-prime rental locations.
Knowing where to invest your money can help you to maximise your rental yields in an ever-changing market, as well as to bolster your profits via healthy capital gains when it comes time to sell some or all of your portfolio.
Here are some of the main strategies to consider for rental property investment.
Buy-to-let prime rental property is one of the most common types. In this scenario, you buy existing property in a desirable location, or with other premium characteristics, with the intention of renting it out rather than moving into the property yourself.
In recent years this has been the de rigueur way for landlords all over the UK to build their portfolio. There are relatively few restrictions in most cases, especially if you are a cash buyer, but even if you need to finance the purchase, the mortgage lenders have dedicated buy-to-let loans available.
With buy-to-let rental property investment, you typically buy a property that is already completed and may have been standing for many years, allowing you to tap into prime characteristics such as period properties and quirky conversions.
By letting the property via a professional property management service, you can act as a hands-free landlord to gain long-term rental yields without worrying about the administrative burden or direct repairs to your properties.
In contrast to buy-to-let, build-to-rent property investment involves building new premises from scratch with the intention to rent them out. It’s a good way to get rental properties with specific dimensions and other characteristics, and to fit more units onto an area of land.
Purpose-built rentals in prime London locations have proved popular in the post-pandemic period, especially with foreign nationals moving to the UK capital for work. Build-to-rent homes offer an opportunity to ‘try before you buy’ within prime areas and have been going for well above the advertised rates.
With limited housing supply across prime London, there are clear opportunities for new-build rental accommodation, with substantial value at the top end of the market. However, many build-to-rent properties remain under the ownership of the development company, rather than passing into the hands of private landlords.
Build-to-rent investment is a commitment, which carries the extra burden of drawing up architects’ plans, negotiating planning permission, project managing the construction phase and ensuring the homes are finished to a high standard, but the yields – both rental and capital gains – can be worth it over the long term.
An alternative to build-to-rent property investment is to buy off-plan and invest in someone else’s development instead. There are benefits to this approach – you don’t have to manage the construction and you may be able to negotiate a highly competitive purchase price by putting in an early offer on a property under development.
For example, Black Brick recently helped a buyer to secure a £5.35 million duplex apartment in the new Battersea Power Station development. The main power station building contains just 250 apartments, only two of which were available and matched our client’s criteria.
Black Brick advised on the purchase of the 2,390 sq ft three-bedroom duplex, which had an initial asking price of over £6 million, and was able to negotiate a significant discount. Though this acquisition was for an owner-occupier, it’s a great example of the unique properties available at the top end of the prime London market, and of the room for negotiation when buying properties still under development.
Houses in Multiple Occupation (HMOs) are properties in which multiple tenants live as separate households, while sharing communal areas like the kitchen and bathroom. Large HMOs (those with five or more tenants) must be licensed, as must smaller HMOs in some areas.
There are several other requirements:
With all of the stipulations in place, HMOs can cater to demand in the prime rental market, especially among professionals who might only be looking for somewhere to cook, wash and sleep during the week, before returning to a family home elsewhere for the weekends.
Investing in HMOs can be an excellent way to maximise rental yields with limited space in prime locations, if you are prepared to navigate the complexities of owning a correctly licensed HMO.
The manager of the house can be an appointed agent, provided that they meet the ‘fit and proper’ criteria, allowing landlords to own substantial portfolios without facing an excessive management burden or ever-increasing demands on personal time.
One approach we frequently recommend is to buy in bulk, which means simultaneously purchasing six or more units from the same block or seller.
Buying six properties in this way qualifies as a commercial transaction, reducing stamp duty to 5%. At considerably lower than residential rates of stamp duty, this can make a very worthwhile investment for investors with more experience and larger budgets.
For instance, we recommended this approach to a client looking to build a buy-to-let portfolio in Central London. We were able to source and secure multiple units in Islington Square, one of the best new builds to come to market in that area in recent years, and even negotiated a 17.75% discount.
With lower stamp duty and aggressive negotiation on the purchase price, buying in bulk can therefore be a very profitable strategy for the right investor.
Finally, some landlords choose to focus exclusively on the super-prime rental property market. This places you at the top end of the rental accommodation food chain, with the most desirable premises and, in a healthy market, access to the highest potential yields.
High demand and scarce availability of top-end rental properties allows landlords to choose from shortlists of interested tenants bidding well over the advertised rents, and willing to complete additional steps over the course of their application.
An example of this is people with pets, who have been asked to complete detailed paperwork when applying for super-prime rental property in London, even providing information about their pet’s therapist in some cases.
Short-term super-prime availability in London has been eroded by an increase in premium properties being placed on the holiday let market, including peer-to-peer holiday rentals. With little potential for new capacity in the most sought-after locations, landlords who are able to enter the market are well placed to state their own terms.
Across all the different types of rental property investment, a focus on well-appointed prime property in prime locations, at competitively negotiated purchase prices, is key to maximising rental yields and future capital gains.
Black Brick’s property investment consultants can find your rental property, negotiate the most attractive price, complete the deal on your behalf and position the property to attract the highest quality tenants. Our expert property managers can then run the property for you, letting you enjoy the benefits of your rental investment without shouldering the demands that come with it.
If you are considering a rental investment in London, please speak to our property experts today.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.