Why buy to let?
The last few years have seen a real boom in Brits buying holiday homes. Statistics from the Office of National Statistics show that the number of Britons who own property abroad more than doubled between 1994 and 2004. More than one and a quarter million of us now own second homes in Spain and France alone.
So why has this happened? One of the main contributing factors is the decade of strong growth in the UK property market, creating equity-rich home owners who have been able to re-mortgage their UK property to buy overseas. Higher prices in the UK have also meant people have looked abroad to find good property investment opportunities, many considering the UK market to be over-priced. But these aren’t the only reasons. For many it has been a lifestyle decision. A recent survey commissioned by the Nat West Bank estimated that almost one in six Brits plan to buy overseas. The main reasons for this are more connected to people seeking a warmer climate and more relaxed way of life, either now or in their retirement and are planning for this by looking to invest in property abroad.
According to the Office of National Statistics, Spain remains the most popular location for Britons to holiday and to buy, 27% of British owners abroad have properties in Spain. Established areas such as the Costa del Sol and Costa Blanca are favourites for Britons buying in Spain. France and Portugal follow Spain in terms of popularity for British buyers. Other countries are also seeing an influx of British investors, from Eastern European countries such as Bulgaria and Croatia to new emerging property markets such as Dubai, Brazil and Thailand.
This explains Brits buying – but why has the rental market also boomed? To answer this you need to look at the other growth industry of the last ten years. Low-cost airlines - such as Ryanair, Easy Jet, BMI Baby, Thompson Fly and Monarch have exploded into Europe - opening routes throughout most European cities to the public, making travel within Europe easy, accessible and affordable. Only half of holidays taken in 2003 were package holidays, according to the Office of National Statistics and this figure continues to fall year on year.
This has created a booming rental market to second home owners through renting their properties directly to these holidaymakers, competing head-on with package tour operators. The power of the internet has helped holiday home owners reach these consumers directly, through the increasing presence and marketing power of online rental listing sites, such as www.holidaylettings.co.uk
Business savvy investors are buying holiday homes overseas either as an investment or a lifestyle purchase in the knowledge that these properties can typically be let out when not in use by the owner to a growing audience of holidaymakers keen to book flights and accommodation for themselves through the internet.
Buying to let is a great way to invest in property for long-term capital gain and to cover your mortgage with your rental income. With enough bookings you can pay your mortgage instalments and make a profit on top whilst also having a holiday home to enjoy. Of course the inevitable drawback on buying a second home is a second set of responsibilities – you’ll have two mortgages and two properties to take care of, and that could prove stressful. You will also need to be a responsible landlord to the Holidaymakers who stay in your property. If you’re relying on getting bookings from Holidaymakers to cover the mortgage on your second home, you’ll be putting yourself under financial pressure. When you are buying a second home, you need to be confident that you could cover that second mortgage even if your financial situation changes for the worse or you don’t obtain Holidaymakers’ custom.
With property prices remaining high here in the UK, buying abroad can get you a lot more for your money. With many of its countries joining the EC soon, house prices in some states in Eastern Europe are currently low but rising rapidly and may give a good return for investors in the area. However before you buy, research the particular country. In some countries property price rises are solely due to foreign investment. When interest from these foreign buyers fades, the bubble can burst and prices bottom off. Look to buy in an area where the economy is set to grow independently in the long term.
On the other hand if you buy outside the UK you will have to deal with legal procedures that are entirely unfamiliar to you and possibly a language barrier as well. Think carefully before taking on a property which needs substantial work, unless you can relocate for a few months, you won’t be there to make sure any work gets done and you will have to manage building or repairs from a distance.
Many investors are still choosing to buy a second home in holiday destinations in the UK. While the initial outlay may be higher, you have the advantage of easy access to the property and the option of long-term rentals as well as short-term holiday lets. You can make good returns on your initial outlay if you buy shrewdly and purchase a property being sold for less than its full market value via private sales or at auction.
Property is the sort of steady investment that doesn’t go out of fashion. Property prices over the long term almost always rise and when you invest in a second home you may be able to sell with some appreciation on the original purchase price or you can hand down property in your family to be enjoyed into the future. Be aware that if you buy a holiday home that you have fallen in love with, you need to be flexible about the property to make renting it out work to your advantage. You have to know from the start that things will get broken from time to time, and other people may not always love or appreciate the property as much as you do. However, if you can handle those sorts of issues then buy to let is definitely a good option. Remember, besides these considerations buying a second home will give you, your family and friends a place to enjoy great holidays for years to come, which is a huge lifestyle bonus.
There is plenty of money to be made from buy to let properties, and you don’t need to be a business expert to make it work for you. You do need to honestly assess what you want from the property, and keep that in mind when you buy. You also need to make sure that buying to let will suit you personally, so think about it from both sides before you rush in. Choose wisely, do your research and prepare for a little hard work and you too can enjoy all the benefits that owning a holiday home that pays for itself can bring.
