Is the ‘golden age of property investing’ over?

Whether it’s through development or by being a landlord, property investment has changed beyond recognition in the last 10 years. A previously booming housing market meant that it was a given that investing in property would bring in a substantial profit, but this is no longer the case.

We spoke to six property experts to find out whether the “golden age of property investing” is over and how you can still make money despite a challenging market.

There are a number of regulatory and financial reasons why property investing is not the safe bet it once was. These include the cost of mortgages, the reduction in what landlords can reclaim against tax, energy efficiency requirements and the introduction of the additional stamp duty rate.

“Profit margins are slimmer thanks to new rules on tax relief and compliance, affordability constraints and higher interest rates,” says Kelvin Elliott, property expert at Property Sale Watchdog. “Tighter lending practices, increased stamp duty on additional homes and additional regulations have all [also] contributed.”

Added to this, the cost of building or upgrading homes has gone up. “Materials and labour costs have made it extremely expensive to build, which in turn means that when pricing the property in order to sell you would need to go much higher in order to gain a margin,” says Tomer Aboody, director of specialist lender MT Finance.

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“Those looking to make money from property must be careful to take into consideration all costs, plus a higher buffer than 10% – perhaps nearer 20% to 30% as a contingency – before looking to invest or develop.”

Overall, house prices have also remained stagnant or only risen a small percentage in the last few years. “Falling or flat achieved prices undermine development appraisals, helping explain why new build starts sit below government supply ambitions and below mid-2010s peaks,” says Michael Holmes, property expert for the Homebuilding & Renovating Show.

“At the same time, weaker high-end international demand and fragile consumer confidence have softened some demand segments.”

All our experts agree that while the “golden age of property investing” might be over, there are still ways to make a profit from property.

“Bricks and mortar are flexible, unlike other investments,” says Marc Schneiderman, director at Arlington Residential. “You can rent out your property and get an income as well as capital growth; you can potentially extend/enlarge/improve your property investment, and you can realise a sale and leverage your holding by borrowing against it. You can also of course live in it.”

When it comes to the most profitable forms of investing, our experts suggested the following:

The days of being able to make a quick buck from flipping property or renting out for a short period are long gone but, for those up for staying the course, there are rewards in the medium or long-term. Population growth and an undersupply of property mean there will always be a market for those wanting to buy and sell or rent out property.

“Rental income and slow capital growth can beat other asset classes over a 10-to-15-year timescale (on average 3.5% per year), especially if you put your profit back into maintenance and improvements to raise the property’s appeal and value,” says Tim Phillips, property surveyor expert for the Homebuilding & Renovating Show.

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“In the longer term you can still make a profit if you buy well enough because there is plenty of demand and many reasons why people want to sell in a hurry,” says Jeremy Leaf, a former RICS residential chairman.

“You are still more likely to make a profit long term by adding value via conversion or development or investment rather than just flipping.”

Holmes adds that changes to policy may also make medium- and long-term property investing more lucrative.

“Affordability is the current brake but could improve if mortgage rates ease further and real wage growth continues to outpace inflation. Potential policy shifts such as recognising rental payment histories, adjusting income multiples, or lower deposit pathways could stimulate first-time buyer demand.”

In terms of property type, Houses of Multiple Occupation (HMOs) are the most profitable rental stock. “Although rules and regulations are tightening on HMOs, and licence fees are continuously increasing, there is still profit to be had when investing in a multiple occupancy property,” says Elliott.

“Usually, the income from multiple, separate tenants will bring in a much higher monthly amount — not only making it more profitable, but reducing the risk of unlet rental accommodation or missed payments.”

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Airbnb (ABNB) has helped make holiday lets easier to market and, therefore, more profitable, even when you take into account their seasonality.

“Whilst there is an increased workload with regards to booking administration and cleaning, this can still provide significant income even if factoring in the cost of a rental management company,” says Elliott. Other profitable property types include build-to-rent and co-living developments.

Buying property as a limited company rather than an individual offers more scope for profit in the long term too.

While borrowing costs and stamp duty may be higher, mortgage interest can be offset against tax when portfolios are structured in this way.

Elliott says this offers the best option to “manage tax and retain profits for reinvestment”.

With most properties bought with a mortgage, those that are unmortgageable can turn a good profit once their liability has been removed.

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“Properties that are mortgage unfit (uninhabitable, very short lease) or secured off-market may allow entry at a price reflecting additional risk and effort — provided thorough due diligence is done,” says Holmes.

With price rises muted, location has never been so important to the profitability of an investment.

“Demand and location influence where higher profits can be made from property — these include university cities, desirable locations such as within commuting distance of larger cities, tourist hot spots such as coastal destinations, national parks and booming cities (London, Edinburgh, York, Oxford and Cambridge),” says Elliott.

“Northern cities are increasing in cultural appeal, as well as being chosen as places for businesses to relocate to, affordably — this is resulting in a boom in popularity and high yield potential for investors. Manchester, Liverpool, Newcastle, Leeds, Sunderland etc. are easy places to make a profit.”

And Leaf agrees: “It is easier to make a profit in more affordable areas, towns and cities where prices have been relatively lower, and affordability is still relatively strong.”

Holmes, meanwhile, suggests buying in early-stage regenerations zones “where transport upgrades or demographic shifts are tangible” as they “can provide upside if purchase discounts reflect current shortcomings”.

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