Top Reasons for Investing in Property
Investing in buy-to-let property is one of the most popular ways for an investor to start building a wider portfolio. Property investment doesn’t require a lot of technical knowledge and, for the most part, the process of purchasing a property hasn’t changed for several years.
The thing is, there’s plenty of other benefits that might explain why an investor would invest in buy-to-let property. In this article, we explore the top reasons for investing in property and why you should consider the asset at in the first place.
Why should I invest in buy-to-let property?
The UK is one of the most populated countries in Europe, and with ONS forecasts putting population growth on an upward trajectory, the subsequent demand for property will continue to rise. With predictions suggesting a population of over 71 million by 2040, both the sales and rental markets will benefit from this rising demand.
The Private Rented Sector is the second largest tenure in the UK housing market, with over five million households renting from a private landlord – more than double the amount from 2000. The continued rise in UK tenants has been attributed to a myriad of different reasons, including changing perspectives towards the rental market, rising costs of living and the continued growth of property prices.
Property prices have been increasing for the best part of 10 years, but with the average price now surpassing £287,000, renting property is much more affordable for many, especially when it comes to saving for a substantial deposit. While the incentive for first-time buyers to purchase property is rapidly diminishing, the same can’t be said for investors. With more tenants in the market than ever before – and an increasingly large number choosing to rent – buy-to-let property is regaining its status as an attractive investment.
Top reasons for investing in property
For those left wondering, ‘why should I invest in property?’ we’ve pinpointed some of the top reasons for choosing buy-to-let property. From its resilience to its diversification value, this list covers many of the unique characteristics of this investment asset:
Security
It’s no secret that property is a long-term investment, one which becomes considerably less ‘risky’ the longer you hold the asset. There are many benefits that come with holding capital in buy-to-let property, which usually increases every year you spend in the market. Not only can you expect a consistent monthly income, but there is also the opportunity for bigger long-term gains.
Similar to other investment assets with comparable risk levels, such as stocks, the investment length remains crucial for optimising returns. That said, a major difference between buy-to-let property and investing in stocks is time – property delivers a true passive income, whereas stocks often require a keen eye, active management and more technical knowledge. Even entering the world of property is more straightforward, with factors such as regeneration, demand and amenities typically being key indicators of a property goldmine.
Unlike stocks, buy-to-let property is a tangible investment asset that can offer multiple streams of passive income and, above all, a consistent income. While the supply of property can fluctuate, demand has never faulted. The current growth of UK property can largely be attributed to a perfect storm of dwindling supply and rising demand, helping many locations across the country emerge as pockets of potential for investors.
With forecasts predicting up to 14% growth in UK property prices over the next four years, it’s no surprise that more investors are considering these emerging areas for buy-to-let property. In turn, experts believe that the private rented sector could eventually make up 25% of the entire property market by the end of the decade.
Related: Where are the Best Places to Invest in 2024?
Diversification
More often than not, a diverse investment portfolio is a successful one. Whether you invest in a combination of stocks and crypto, or property and gold, the benefits of having a variety of assets in a single portfolio spread far and wide. Not only do these provide several streams of income, they also allow investors to reap the rewards of multiple different markets.
While investors will benefit from the growth of these assets, this level of diversity will also minimise the effect of any market fluctuations on the wider portfolio.
If you’re still questioning, ‘why should I invest in property?’ its potential and diversification value are more than enough reasons to choose buy-to-let property. Unlike other investment assets, property alone can deliver a diverse portfolio, with various property types allowing investors to benefit from several distinct markets.
Not only can investors choose a combination of commercial and residential property, but residential property can be used to build a diverse and robust investment portfolio. Houses and apartments are two distinct markets and attract two different demographics. Houses tend to appeal more to families and older renters, whereas apartments are usually more popular amongst young professionals and couples.
By having a combination of houses and apartments in a single portfolio, you’ll be covering both demographics whilst simultaneously benefiting from various market trends. For example, the ‘race for space’ we saw throughout the pandemic generally made bigger properties more appealing, but as city centres continue to rebound, apartments in central spots are now growing in demand.
This is just one way residential property can be used to build a diverse portfolio, with other avenues such as investing at different price points and in different locations reinforcing the diversification value of buy-to-let property.
Related: What is the Best Type of Property for Buy-to-Let Investments (With Examples)
Accessibility
Residential property is considered the most accessible investment class there is, as well as being one of the most diverse.
We’ve come a long way since £120k prices for a three-bed house in the suburbs, but if there’s one thing we’ve learnt over the years, it’s the cyclical nature of these growth periods.
Although property comes with an upfront deposit – which is usually around 25% in buy-to-let markets – the consistent growth of this asset makes this initial payment a small price to pay to have a potentially lucrative investment for a lifetime. At the same time, while performing your due diligence is vital, property doesn’t necessarily require the technical knowledge that you might require with stocks and crypto.
That doesn’t mean investing in UK property is easy. Planning is very important and can often maximise an investment portfolio by keeping it focused. For example, if you have clear financial goals from the outset, you’ll be able to build a more accurate plan of how to get there, with a better idea of which combination of property types would be most effective.
Wealth Generation
‘Why should I invest in property?’ may be a common question amongst the majority of prospective investors, but much like investing more generally, making money is one of the main reasons. Whether it is to achieve financial freedom, an easier retirement, or to just build a ‘rainy day’ fund, wealth generation is at the root of all investments. Buy-to-let property can deliver in two different ways.
The monthly rent that comes with buy-to-let property is often the main incentive for investors choosing this asset, with this consistent stream of income allowing landlords to not only cover the costs of the property itself but to build a ‘safety pot’ with the remainder of the profits. This can be used throughout an investor’s hold period as a safety net, or alternatively reinvested into improving the property in question or purchasing additional assets.
In addition to this rental income, investors can usually benefit from capital growth on their buy-to-let properties. This is the main advantage of holding property – it allows the asset to experience multiple market cycles. This usually boosts the overall value of the asset. So, when it comes to selling the asset, it’s likely that the price of the property will have increased over time.
This means that a single property technically offers two separate streams of income: the monthly rents you receive from a tenant, and the lump sum that comes with the capital growth of the property. With this increasing with each and every property that is added to a single portfolio, this highlights the financial opportunities that come with buy-to-let property.