Investing in the British private rented sector has become one of the best ways to gain a steady income in recent times, with yields having improved ever since the market crashed in 2008, leaving more people than ever renting rather than buying.
However, it’s not as straightforward as buying property and putting it straight on the market. There are a range of different asset classes available across the buy-to-let sector, and for those looking to maximise their income, it’s all about finding the one which offers the best returns.
We take a look at the different asset classes in buy-to-let and which will give investors the best return for their outlay.
Apartment blocks are the new trend in buy-to-let, and they are becoming more popular as a result. Purpose built as separate units, these are often sold off plan to investors who can purchase the number of units that they wish. Off plan buying means that they are able to get properties at below market value in many cases, which means that their levels of return are much higher.
According to reports, in the last three months of 2014, the popularity of this type of property as a rental home meant that investors were seeing themselves bring in returns of 9.3 per cent on average. This is the highest of all asset classes in the buy-to-let market.
The other advantage of this type of investment for buyers comes from the fact that it is often a passive way to operate. Blocks are often managed by a single company, which means the owners need not worry about things like maintenance and repairs.
Homes of multiple occupation (HMOs)
It used to be the case, according to a report from Mortgages for Business and published in the Telegraph, that houses of multiple occupation (HMO) were the safest bet when it came to making returns. This sort of investment traditionally involved buying one large house and converting it into a number of apartments.
While it has been overtaken by investment in apartment blocks at the top of the pile, it doesn’t necessarily mean that this asset class has fallen off the map altogether although many investors have turned their attention to opportunities which are less hands-on.
Straight buy-to-let purchases are still popular with many investors as well. In this type of asset, investors will purchase a property and then let it out to a tenant. It’s perhaps the simplest strategy for the private rented market, but it comes without the high yields that are being seen in other asset classes.
According to Mortgages for Business, in the December quarter of 2014, returns for traditional buy-to-let were around the 6.3 per cent mark. While this still represents a strong yield for owners, it is considerably lower than those which can be achieved in other asset classes.
The new star of the buy-to-let market, student property has been the golden asset in recent times as it has climbed in prominence and brought investors some very strong returns. In the last three years, this arm of the sector has brought in a staggering £6 billion worth of investment and it’s only likely to get even stronger in the next few years.
At the moment, the Mistoria Group reports that returns average about 6.7 per cent for student property. However, in certain areas of the country where demand is high, it can be significantly more than this. For example, some parts of the north-west have allowed investors to make returns in excess of 13 per cent in the last year from student investment, making it a very popular venture indeed.