In property, there has certainly been many positives coming out of the last 12 months for landlords, with rents up more than 11% compared to last year and house prices still rising, despite the rate of growth starting to slow.
However, the rate of inflation has already surpassed the average buy-to-let yield of 5.5% and with the Bank of England base rate now 1.75%, with further rises on the horizon, the cost of investing in and managing a property portfolio is higher than it has been in decades.
It begs the question, is buy-to-let still a viable investment vehicle, particularly when the government seems intent on bringing in more legislation that only deters the supply of rental stock rather than encourage it?
For premium franchise, Platinum Property Partners (PPP), it certainly is. As many businesses struggle through the economic uncertainty, the PPP property investment model remains a solid business opportunity, supported by a head office team and infrastructure that have already weathered some of the biggest challenges in the private rented sector in recent history.
For those looking for a robust franchise that can provide a lifelong income and the added bonus of capital growth over the long-term, PPP provides inflation busting returns.
Protecting profit margins
For landlords within the PPP franchise, the impact of the rising cost of living and running a property business has not been without its challenges.
The network, which supplies high quality shared accommodation, also known as Houses in Multiple Occupation (HMOs) to young professionals, has seen mortgage interest payments rise as well as energy bills.
With the recent announcement by Ofgem that typical energy bills are to rise to £3,549 per year, this will significantly increase the cost of running HMOs, which are rented to tenants inclusive of bills.
Yet the franchise, which is celebrating its 15th year in business in 2022, is not overly concerned due to the robustness of their tried and tested investment model.
“Our HMO model generates up to four times as much rental income as a single occupancy buy-to-let”, says Emma Hayes, Managing Director. “It was designed to maximise rental income that provides franchise partners with a sufficient buffer against the ever-changing running costs of a property portfolio whilst providing much needed and affordable accommodation to tenants.”
Since 2007, the franchise has proven its strength through a financial crisis, numerous legislation changes, interest rate rises, the removal of mortgage interest rate tax relief and now the energy cap rise.
Emma adds: “Franchise partners are still achieving upwards of 10% return on investment across their portfolios despite increasing costs and legislative enforcements. Being part of a network of over 200 people means we have been able to share knowledge, adapt our business model and work together to ensure our properties remain highly profitable without compromising the quality.”
As of the end of 2021, the network had generated £237 million in rental income and achieved £43 million in capital growth since the franchise was founded.
Increasing demand in the cost-of-living crisis
The demand for premium shared housing has always been high, as a growing mobile workforce seeks more flexible and affordable rental options. However, with research showing that the rising cost of living is now sadly making housing costs unaffordable for 20% of tenants, PPP only expects this demand to rise.
Before the latest Ofgem announcement, rooms were receiving 30 applications within the first 24 hours, and this could potentially double.
Compared to renting a one-bedroom flat plus bills, renting an all-inclusive room in a professional HMO remains more than 40% cheaper and ensures transparency with just one bill.
“The astronomical hike in energy costs is expected to cause a significant spike in tenants looking to rent a room in a shared house compared to a single-occupancy property,” comments Emma. “As they struggle to pay current market rents and rising bills, HMO accommodation provides a level of certainty with one monthly payment inclusive of bills, which is considerably cheaper than renting alone.”
The combination of strong tenant demand and almost double the return on investment offered by other buy-to-let property means the PPP model offers a level of certainty in uncertain times.
This article comes courtesy of Platinum Property Partners, the specialist property investment franchise who have helped more than 400 franchise partners build successful businesses over the past 15 years.