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Letting property

Why buy to let?

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Tenants that are disrespectful to your property and leave it like a rubbish tip, contractors that do shoddy work an overcharge you for it, lots of paperwork, stress, huge time demands, all sorts of insurance expenses and no small amount of risk. Buying a property to let has the potential to include all of these problems as part of the package, so it is definitely not for everyone. But it isn't always like that...

Capital growth
Over the long term property is almost always an improving asset. Unless you buy at an overly inflated price, let the place fall into disrepair, or some kind of disaster besets the structure of the place, then you should eventually end up with an asset worth considerably more than you paid for it.

A study from the Halifax showed that on average property values have risen by a factor of 22 over the last 30 years, though obviously this doesn't take into account inflation. All the same, this can hardly be classed as a bad return on any investment made back at the start of the seventies. With demand for housing set to boom over the coming decades, there is no reason to suggest that this long-term trend will change.

It is for this reason that many people invest in property purely for long term profit, hoping to make money on the rising value of a property. It really can be a very successful vehicle if you know what you are doing, choose the right areas and properties and perhaps have a few doses of good luck along the way.

Some people manage to make a tidy income from renting out property. A large lump sum that is invested wisely can lead to the acquisition of a high yield property portfolio. Whilst this income may not necessarily be enough to live off, it can certainly provide a useful supplement to other revenue streams. However, this is also the investment objective that has the highest failure rate. Choose the wrong property and you can find that much of your supposed income is eaten up by maintenance, repair costs, mortgage payments during void periods, refurbishment, financial products, lettings agent fees and various other expenses.

Retirement planning
Property is an increasingly popular choice people among people planning for retirement. This has in part been driven by falling annuity rates, that mean pensions may not provide the returns previously expected. Shrewd property acquisitions can remove much of the dependence on a pension. If approached correctly, a buy to let investment can be self financing over the life of the loan repayments. Once the mortgage has been repaid, the property can provide a useful and sometimes sizeable income.

With a personal pension or money purchase scheme, you cannot access your cash until you retire. When you do, you are then forced to buy an annuity, which are subject to variations in their rate, meaning that you cannot guarantee how much you will end up receiving. With property, you can access the cash at any time you wish, by selling up. As well as having an investment that could provide you with a regular long term income, you end up with a sizeable asset that you can pass to your children or other relatives.

Student property
Another phenomenon that is occurring more and more is that of parents buying property in the town where there children go to university or college. The parents are able to assist their child or children with low rent through university, while retaining the asset once the period of study is complete. This can be a great idea that suits everyone concerned.

However, you should remember the long term and think about whether you will be happy letting out your property on the open market afterwards. Despite research from the Joseph Rowntree foundation stating that many landlords find students to be excellent tenants, we all know that this isn't always the case. If you plan to sell up at the end of your child's period of study, then you may find that you have not held the investment for long enough to make anything other than an overall loss.

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