Market Report: Are Landlords Cash Rich & Loaded?

If you believe the papers all landlords are making money hand over fist and every rental property has seen double digit rent increses in the last year, as usual not everything you read is 100% true.

For what it is worth there is a modicum of truth in the reports so let's look at the issues that have been highlighted by the press in recent months and see if we can get to the truth behind the “fact” .  From the sharp end of the letting industry our thoughts are as follows:

Landlords have never had it so good

True, landlords are beginning to make decent profits from their buy to let properties if you look at pure rent against mortgage repayments.  However when you add in the extra costs incurred when owning a buy to let property the “never had it so good” story becomes less of a story and more of a myth.

Rents are going through the roof

Once again there is some truth in this.  We are looking at increasing rents significantly when properties come on to the market usually between 5-10%.  However these are usually the first increases in 3-4 years, and if we average out a 10% increase over a 4 year period we get 2.5% annual increase which is below inflation over the 4 years. 

Landlords are also reluctant to increase rents while tenants are in-situ.  The prevailing view is that if a landlord has a good tenant who is paying the rent and looking after the property why do anything to jepeordise the relationship?

Demand for Rental Property is far outstripping supply

True we do get 10 times as many applicants as we have Bristol properties available.  There a several reasons for this:

a) With the current uncertainty in the economy.  Tenants are only moving when they need to eg. change of job, new baby etc.  Very few tenants are looking to upgrade and so there is less churn in the market.

b) The sales market is still in the doldrums and with less new properties coming onto the market the supply demand ratio is out of sync.

Just because there is an imbalance does not mean that landlords can charge what they like or that every property is snapped up.  Tenants are looking for value.  The emergence of property portals such as Rightmove and Zoopla means that tenants can very quickly learn what is a market price for a typical property in an area and will cross off their list any properties that don’t fall into the market price bracket.  Tenants are also looking for quality, and will usually reject any property that does not have plumbing for a washing machine, good broadband and a shower, unless of course it is priced accordingly.

Conclusion

So in conclusion it is true that the rental market is undergoing a boom and that we like all other agents are looking for new property, but letting a property is not a licence to print money and that it is not as simple as opening the doors and choosing a tenant. 

In the next market report we will look at what landlords can do to maximise their income and more importantly maximise tenant occupancy.

Comments:

The rental market has also been viewed positively by mortgage lenders with more competitive products now avaialble compared to a year or so ago. With 25% deposits the norm lenders are well covered regarding fluctuating equity and with rental demand strong this market sector is now proving more popular. We are speaking to more and more 1st time landlords looking to invest in this area where a better return on their money can be achieved when compared to the volatile pensions & investment market.Steve Bolt November 16th 2011 15:21:25