The Secret To Successful Property Investment In Today's Challenging Market

With the current changes affecting the rental property market, it’s unsurprising that landlords are leaving the sector at an unprecedented rate. 2022 saw a reduction of 66 properties on the rental market every day, with 35,000 more properties sold by landlords than bought last year.

So, with the traditional buy-to-let model rapidly becoming an unattractive proposition, property investors are looking at different ways to make money in the property market. For those with a keen eye, there are still opportunities to turn a profit, with purchase, renovation, and sale, becoming an increasingly popular approach to property investment.

What caused this landlord exodus?

Over the last year, the buy-to-let market has gone through some significant changes that have pushed many landlords to breaking point. Mortgage rates have soared following the Bank of England’s rates hikes over the last year, doubling from previous levels. However, with changes brought in by the Renters Reform Bill, landlords can’t simply cover their increased costs by raising rents. The abolition of Section 21 evictions (no fault evictions) also means that landlords can no longer simply give 2 months’ notice if want to get their property back.

The final straw for many landlords will be the increase in Capital Gains Tax from April 2023. The decision to reduce the tax-free exemption from £12,300 to £6000 may accelerate the decision for some landlords to sell their properties now in order to get ahead of the changes.

An increase in ‘distressed’ sales could mean AN opportunity

As both landlords and homeowners feel the pinch, with rising prices and soaring interest rates, the number of distressed sales is likely to increase. For those with a good eye for property, that means the opportunity to purchase properties at a below-market rate, which can then be renovated and sold or simply ‘flipped’ for a quick profit.

Using a bridging loan can be a good way to facilitate this type of purchase, as they can be arranged quickly, something that is essential if the property is being sold at auction. Since the credit crunch in 2008/9 fast bridging loans have been widely used to facilitate this type of purchase, especially as bridging interest rates have virtually halved over the last 12 years. 

For those unfamiliar with bridging finance, it’s important to be aware of the other costs involved in this type of finance, so using a good bridging loan calculator is essential to ensure that you aren’t caught out by unexpected costs.

As an alternative, funds can be raised via a homeowner loan or secured loan on an existing property as a way to release equity to fund a new purchase.

Commercial properties offer a good alternative investment

For those who want to avoid the headaches that can come with being a residential landlord, commercial property investment offers an alternative. Commercial bridging loans can be arranged quickly to enable you to take advantage of properties that come on the market and present a good investment opportunity. Larger properties, such as HMOs, shops, or industrial units can offer a good investment alternative to traditional buy-to-lets.

Similarly to residential properties, commercial properties bought in a poor state can be renovated and then sold for a profit. Alternatively, they can be transferred onto a commercial mortgage and then rented out. For many landlords having tenants on a commercial lease comes with fewer headaches than managing a residential tenancy.

Getting your finances in shape first

Before investing in a new project it’s always a good idea to get your finances in shape first. Reviewing your outgoings and reducing these to a minimum will help with cash flow, to ensure that you give your new venture as much chance of success as possible.

If you have a number of sources of debt it can be a good move to consolidate these into one loan, where possible, particularly if some debts are on high-interest rates, such as credit cards. A debt consolidation calculator can help you see how much you could reduce your monthly outgoings to get yourself on a better footing before you embark on your new investment.

Don’t forget Stamp Duty

It’s important to ensure that you factor in stamp duty costs when setting your budget for any new property investment. The applicable rate will vary, depending on the type of property that you are purchasing as well as where it is in the UK. Using a stamp duty calculator will enable you to accurately workout exactly how much stamp duty will be payable so that you can ensure that you have budgeted appropriately.

Why now is a good time for small-scale projects

Over recent years it has been challenging to find labour for building projects, as the big housebuilders have dominated the market, taking up most of the supply of both labour and materials. However, the rate of new builds is now decreasing, linked to economic uncertainty and rising mortgage rates, which means that the supply and cost of skilled labour may well decrease in the coming year. This is good news for anyone embarking on a refurbishment project where they aren’t able to complete the works themselves and means that 2023 could be a good time for landlords to invest in new ways in the property market.

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