Selling on the Buy To Let Investment Dream
Darren Shaughnessy, Director Kings Residential, Estate Agents in Manchester and Letting Agents in Manchester writes:
Many of our City Centre’s are awash with cranes as apartment complex after apartment complex change the horizon of our towns and cities.
These are largely funded by the Buy-to-Let investor. The developers are offering easy-in options to the Buy-To-Let investors so it is attractive at least on paper to the Buy-To-Let investor.
However, on re-sale it is not feasible to offer the same easy-in incentives to lure the property investor. In these locations the apartments become much more like a commodity item. Realistic re-sale values are based much more on demand and supply and the income potential of the property than the original purchase price. The majority of these apartments are too expensive for the local population to buy in the kind of numbers that the long-distance investors are buying. This immediately makes these apartments difficult to re-sell so the price has to be lowered to a level that appeals to investors.
In deciding where to buy, the investor should be looking at the overall income potential of the investment and that is based far more on the rent-paying potential of the local population than any other factor. The income of the local young professionals and wannabe city centre dwellers dictate the realistically achievable rent for a property. In Manchester, for a standard apartment this equates to £750-850pcm in the city centre, £650-750pcm on the periphery. Obviously facilities such as parking, gymnasiums, pools, concierge, and extra large apartments will result in higher rents.
The reality for many Buy to Let investors is that the rental incomes are not covering the mortgages. This is not necessarily a huge issue as in many investors eyes the affordable difference between rent and mortgage is a small price to pay for the long-term return because a third party (the tenant) is paying the majority of the mortgage. However, those who believed they would achieve significantly higher rents or have purchased multiple properties, and have mis-budgeted find themselves in a negative equity-negative rental income trap. They cannot realistically find a buyer fast enough to leave the property empty for re-sale. Equally they cannot afford the mortgage payments without the rental income and even with the rental income they are falling uncomfortably short. Once a tenant is in the property it is only realistically saleable to another investor but the developer down the road is offering a very sweet deal indeed.