The numbers don’t tell the full story – Return on investment in city property and the human factor
City property investment strategies are one of the best options for your money as many of our multiple investors recognise. It never does any harm to review and remind ourselves of why though, so let’s take a coffee break sized run through of why city property is such a big draw for investors.
The rental property market is growing and likely to continue to grow
There is no doubt about how attractive the property market is for investors. While other potential places to put your money such as playing the markets or a low yield savings accounts have their charms, property remains a top destination for the professional investor. There are a lot of reasons why this is the case, but the bottom line is that property increases in value. That has been the situation for hundreds of years. Putting money in bricks and mortar has always been safe and paid well.
Despite what the world looks like or the gloom on the news there is still demand for homes and there always will be. We could probably end this article here because that seems reason enough. Read on though. The property market, and in particular the city property market, is really interesting at the moment.
This could be an incredible time to invest in city property
We have been in property investment for quite some time, and we specialise in finding the right opportunities in the most interesting places. Honestly, we love the space we work in because it’s such a fascinating market. Right now, we think the city property world is poised to leap forward.
In purely business terms buying a property for rent is a simple enough transaction at heart. You pay X amount for a property you get Y amount in return for that investment. The better the ratio of X to Y and some other factors that we discuss below, indicate how shrewd that initial purchase was in terms of your return on investment. For something like our St Annes Gardens development in Liverpool, you can look to your investment returning 8 – 9% pa. That’s a pretty good return. As the buy price is very attractive as well, it’s clearly a good deal. As I said that calculation is not exactly rocket science good price and good return mean a solid proposition.
However, there are other factors to consider and top of the list is the question ‘will it rent’?
‘Will it rent’ as a measure of likely ROI
The problem with X = Y style measurements is that they are economically sound, but they don’t always reflect the real world. In the middle of all the maths is a variable that often isn’t accounted for. For the money to be there to create that return on investment, people will need to be in the property paying rent. People though, as we all know, are not quite as reliable as X =Y economics yet the success of your investment relies on them..
So, if we accept (and we really should) that human beings are directly linked to the return on your investment, we need to assess what will motivate them to make an informed decision. When you look at some of the factors that are motivating people at the moment and extrapolate out to the mid long term, the city rental world gets very interesting indeed.
From the point of view of a renter, a city apartment usually has one or both of two main motivators. It is near where people work and/or they like the lifestyle offered from being in a major city. The latter is not really in question. There is no doubting Manchester or Liverpool for their music or cultural scenes for example. The first motivator though about being nearer to work is where things are interesting. The investment and growth in many cities are phenomenal. Gentrification and high-tech developments are attracting major investment from the UK and Europe. With unemployment so low, businesses are also making city centre jobs more attractive in terms of salary and benefits. That means jobs now, but just as importantly, these are not going to vanish in the short term. As the employees perhaps move out of the city as their families grow, younger professionals are in the wings waiting to step in and take their place.
Which brings us to another motivator. The next generation of renters are accepting of the fact that they are not going to be early house owners. They are planning to save for their own property later in life, and that means renting now.
The convenience of renting close to where they work is a significant factor in how they approach their property needs. Where many used to consider renting outside the main city for a slightly lower rental, the cost of commuting, the need for a car and things like the hit from increased utilities spend in older buildings, often offsets this. Financially, being in the city centre makes sense.
Finally, and crucially, the need for property is growing and the available properties are not necessarily keeping pace. As with any commodity this is driving demand and price. Renters understand this very well and they are not looking to move around, they are looking to rent and stay.
So, to summarise, city centre property rentals are in demand, paying high returns, affordable as an investment and the market needs then. Most importantly, they have the ‘human factor’ that are meeting the financial and lifestyle needs of the very people who will provide the return on your investment.
Call us and we can run through the available properties to see what is going to work best for your money.