As 2023 concludes, reflecting on a year marked by the highest mortgage rates in 15 years, declining house prices, and a dip in property transactions. Despite the challenges, portfolio landlords retained their buy-to-lets, and market confidence saw a gradual resurgence when the Bank of England maintained the base rate. As the year concludes and the new one approaches, let’s examine why the coming year presents an opportunity for property investment, offering a strategy to build wealth in the conditions of a buyer’s market.
Are Rental Properties a Good Investment in 2024?
Investing in rental properties can yield significant profits, contingent on various factors such as property type, location, condition, and market dynamics. The overall profitability hinges on a careful consideration of costs, encompassing mortgage payments, property taxes, insurance, as well as maintenance and repair expenses.
According to data from the National Association of Realtors, the average rent in the US stands at $2,508, with 35% of households opting for rental properties. It’s worth noting, however, that the average rent is 12.95% lower than the average monthly mortgage payments. This underscores the importance of prudence in selecting the right type of rental property to ensure a favorable financial outcome.
In essence, the key to a profitable property investment lies in a thorough evaluation of expenses and projected cash flow—calculated as the amount earned after covering all costs. This meticulous assessment is crucial before committing to a property, ensuring that each month brings positive returns rather than incurring financial losses.
Why Invest in Buy-To-Let in 2024?
Property prices are projected to rise in upcoming years
Property prices have experienced monthly fluctuations throughout the year, resulting in a general year-on-year decline, and projections from Rightmove indicate a further 1% drop in 2024. While this might not be ideal news for existing landlords, it offers an advantageous scenario for investors seeking to enter or expand their portfolios, capitalizing on more affordable pricing. Current market conditions, according to Zoopla, align favourably for buyers, reminiscent of the conditions observed in 2018. Encouragingly, both current buy-to-let owners and potential investors can anticipate a substantial 17.9% growth in property prices by 2028, as forecasted by Savills. Therefore, stepping into the market in 2024 during a period of low prices positions investors to potentially benefit significantly from capital appreciation.
Current property price discounts
The ongoing trend of falling house prices coincides with an increase in seller discounts. Between November and December, prices experienced a decline, and property discounts reached a five-year peak. Zoopla reports that the average discount stands at 5.5%, translating to £18,000 off the initial asking price set by sellers. These relatively stable market conditions have resulted in a notable 6% surge in buyer demand. With heightened competition among buyers, investors may find it advantageous to enter the market promptly to capitalize on the prevailing discounts being offered by sellers.
Interest rates are seeing improvements
Following 14 consecutive increases, the Bank of England opted to maintain interest rates at 5.25% in September, continuing this trend in November and December. This decision prompted lenders to lower interest rates, resulting in a surge of mortgage products below 5%. If this trajectory persists and the Bank of England further reduces the base rate, analysts anticipate the availability of sub-4% products in the market by the first half of 2024. The positive shift in interest rates for 2024, in contrast to the 15-year peak witnessed in July 2023, positions it as an opportune year to secure a competitive rate for your buy-to-let investment. The convergence of competitive mortgage rates and decreasing property prices extends the reach of an investor’s capital, offering access to superior properties and heightened potential for substantial returns.
Increased number of properties for sale
Throughout the pandemic, the property market witnessed intense competition, resulting in a limited inventory of available properties for sale. Recent market dynamics, however, have ushered in a more robust supply of properties, reaching a six-year high in listed properties. Property sales have also seen a 15% increase from 2022. This augmented supply and demand scenario provides new investors with a broader range of options for selecting the right buy-to-let property, indicative of buyer confidence in the market. Notably, three and four-bedroom properties have experienced a substantial surge, presenting landlords with opportunities to diversify their portfolios, potentially exploring HMO properties. The expanded pool of available properties in 2024, in comparison to recent years, empowers investors to align their investment goals with suitable properties.
Rental demand continues to grow
Research from the National Residential Landlords Association (NRLA) reveals a substantial uptick in rental demand, with 71% of landlords noting an increase this year, marking a threefold surge from the 2019 figure of 22%. The West Midlands stands out, experiencing a robust demand surge as reported by 76% of landlords. This surge in demand adds a layer of confidence for investors eyeing property in 2024, as the assurance of high returns is underpinned by the prevalent demand for rental properties. It underscores the strategic importance of exploring buy-to-let investments in regional cities like Birmingham, offering lower property prices coupled with high rental demand.
As we step into the new year, the stability witnessed in the property market towards the end of 2023 is poised to continue into 2024. A buyer’s market emerges amidst decreasing property prices, lowering mortgage rates, a growing demand for rentals, and an uptick in available properties. Capitalizing on the forecasted capital growth, entering the market in the upcoming year could prove advantageous, with property’s expected capital appreciation reaching 17.9% by 2028. The convergence of these factors positions 2024 as a promising year for those looking to make strategic buy-to-let investments.
Are rental properties worth it?
Determining the immediate cash flow potential of a rental property is a critical step in assessing its investment viability. This calculation holds immense significance because, as an investor, the goal is to optimize return on investment (ROI), enabling faster mortgage repayment and potential diversification into other assets. The objective is to build wealth rather than incur losses.
For instance, in my real estate portfolio, I channel my returns into acquiring new rental properties annually. This strategy is only feasible due to positive cash flow. Without it, not only would such reinvestment be impossible, but there would also be a risk of accumulating debt instead of bolstering income. Therefore, it’s imperative not to overlook this crucial step, ensuring that the property under consideration proves to be an asset rather than a liability.
Is it a good time to invest in rental property?
Currently, interest rates are elevated. Consequently, a significant number of individuals are hesitant to make a purchase, given the prospect of shouldering an above-average mortgage payment. However, the flip side of this scenario is that, as a buyer, you wield greater negotiating power.