Why age is no barrier to property investment
PUBLISHED: 09:47 12 April 2019 | UPDATED: 09:47 12 April 2019
Demand for rented family homes outstrips supply, says Peter Sharkey.
More than a quarter century ago, business took my family and I to San Diego, California. We planned to open an office in the city and needed to ensure it was fully staffed and operational before returning home. I optimistically believed this process would take a couple of months; for a variety of reasons, it took six.
We rented a furnished apartment just north of San Diego for an initial two-month period, though as it became evident we would be staying longer, we extended the lease without any difficulty. Living in southern California was certainly no hardship; indeed, my wife still refers to it as ‘our spiritual home’.
The apartment had three bedrooms, lounge, kitchen and terrace; it was walking distance from the on-site swimming pools, tennis courts, gyms and parking spaces, access to each of which came as part of the rental agreement.
As a single bloke, I’d lived and worked in New York a decade before, but this was family living, US-style. It trumped anything on offer back home where private landlords were still perceived as rip-off merchants and tenancy agreements were wrapped in the legalese version of knotweed. I wondered why we couldn’t offer something as good and as flexible in the UK.
Thankfully, during the mid-1990s, the domestic property rental market changed for the better following the introduction of Business Expansion Schemes which effectively encouraged buy-to-let, albeit on a very small scale. Before long, the concept of ‘build-to-rent’ also took root, a trend that has not exactly accelerated over the intervening decades.
Last month, however, the PRS real estate investment trust, which rents property it has developed through its Simple Life Homes brand, published an interesting set of results.
PRS differ from most build-to-rent developers as their focus is on building family homes rather than apartments. According to the investor’s weekly bible, Investors Chronicle, this approach “has several advantages in that family homes tend to be better looked after, while the tenants tend to stay [in residence], which cuts down on the possibility of lost [rental] income…Even more important is the fact that the supply of family homes for rent is in very short supply.”
Clearly, PRS has identified an important property niche and expect to take advantage of the same; they plan to build more than 5,600 homes, from which they expect to generate rental income of £56 million.
I’ve long believed that there’s enormous scope for the small private investor, armed with plenty of local knowledge, to do something similar. I’m not taking about building thousands of homes, but acquiring those already built and taking advantage of the demand for family homes as opposed to apartments. But where to begin?
Homeowners over 55 to whom the idea above appeals may believe they must sit on the sidelines and let others benefit from the burgeoning trend that is turning Britain into a rental-friendly nation. After all, who would lend them the money with which to buy an investment property?
Fortunately, they may not have to borrow. Equity release offers homeowners the opportunity to access a tax-free lump sum from the equity accumulated within their property, usually over many years, without the need to sell. Furthermore, unlike re-mortgaging, there are no monthly repayments to make; instead, interest charged on the money withdrawn in the form of equity release rolls up and is typically repaid either when the homeowner moves into longer-term care or dies and the property is sold.
Since 2009, the number of people living in rented accommodation has more than doubled. Today, around 20% of UK households (30% in London) live in private rented accommodation.
The PRS results referred to above highlighted a significant gap in the property rental market, one in which demand for family homes comfortably outstrips supply; this means that rental yields can often exceed 5%, providing homeowners aged over 55 with a potential source of additional income with which to supplement their retirement finances.
Those interested in exploring the equity release option must consider the potential implications vis-a-vis the amount of inheritance left to offspring, while it could also affect longer-term entitlement to means-tested state benefits. Nevertheless, homeowners aged 55 and who once believed they could no longer borrow to take advantage of the buy-to-let market may find the solution to accessing the market is staring them in the face.
THE WEEK IN NUMBERS
Following a report which found that for trips of 62 miles or more, a flying car with a pilot and three passengers was greener that a road car, several bodies, including Nasa, are working on developing flying cars similar to those shown on the 1960s cartoon series, The Jetsons. Seriously.
Hats off to 90-year-old Betty Bromage who, it is reported, “lives by the motto that age is just a number”. The intrepid Betty, who needs a frame to walk, has just completed a wing walk to raise money for a charity home in Cheltenham where she lives.
More than 1,600 public sector workers received ‘golden goodbye’ payouts exceeding £100,000 in 2016-17, costing taxpayers almost £200 million. Fortunately, the Government has announced that a cap of £95,000 will shortly be introduced.
For more financial advice, check out Peter Sharkey’s regular column, The Week In Numbers.