In this blog, buying agent London Central Portfolio offer their top tips for investors looking to purchase a buy to let in London.
London consists of 32 boroughs, that all behave very differently. This makes investing in the right buy to let in London challenging. Investors should research into the different boroughs of London and look for areas offering both capital growth potential as well as high rental demand. Investing in London is mainly focussed on capital appreciation rather than rental yields.
Prime Central London, a collection of neighbourhoods around Hyde Park, is often viewed as a property investment hotspot for investors. Scarcity of stock coupled with international demand has previously underpinned long term price growth in the area. It is also a popular area for high-net-worth students and young professionals looking to rent. In recent years, there has been an unprecedented fall in PCL prices and investors can now acquire property at discounted prices.
Apartments in PCL are still 9.1% below its 2015 peak. However average apartment prices can differ within each neighbourhood from £3,598,000 in Mayfair to £675,000 in Pimlico.
You then need to decide how you will be financing your purchase. This can be through a mortgage or cash. Many investors purchasing a buy to let in London will take out a mortgage, so they benefit from the additional capital for a refurbishment.
Take a look at our investment calculator to get an indication of your potential capital and rental returns, mortgage costs, tax and expenditure.
Type of property
Investors can either purchase a new build or heritage property in London.
Heritage property is by definition a constrained resource, you simply cannot build more. This helps to restrict access to the market and strengthens capital appreciation.
New build is a modern property and has never been lived in before. However when purchasing new builds, not only due to the built in premium the new build developer charges that takes at least one property cycle to recoup, but also because of the release of new builds at the same time, sometimes hundreds of identical units are launched onto the market at the same time. The lack of differentiation between units and sheer quantity of available stock suppresses capital appreciation.
Single unit or block
Investors can purchase an individual unit, freehold block of flats or mixed-use building.
An individual unit is one property, whether that is a flat or house. If you are looking to diversify the risk, purchasing multiple individual units in different areas in London is a great way of doing this.
A freehold block is a building that has been divided into multiple properties. If you purchase a property with 6 individual properties within it, you benefit from a lower rate of stamp duty for multiple dwellings relief.
Mixed-use building is a combination of residential and commercial units. You pay a commercial rate of Stamp Duty which is a lower rate to that of residential Stamp Duty.
Add capital value
Quite often investors acquire unmodernised properties that can be renovated to enhance your investment and generate significant capital uplift as well as maximising your rental returns.
Adding an additional bedroom can provide an instant uplift in value to a property, approximately 20%. Whilst adding an additional bathroom can add up to 10%.
Furnished or unfurnished
Landlords can either rent their buy to let in London furnished or unfurnished. Furnished properties often attract young professionals, students and tenants from overseas looking for turn key properties that they can move straight into. Furnishing a property to a high standard, to attract high quality tenants, can be costly but using a furniture package service is often a cost-effective alternative.
Unfurnished properties will attract tenants who have their own furniture but do not want to pay for storage. A property furnished poorly will receive less views than an empty property.
If you would like to have a chat and discuss your property investment in London with Liam, please use our form and choose a time suitable to you.