Charles Holt (Lincoln)

Many farmers have surplus residential property, that historically would have housed farm staff.  Others have purchased property to let out, as ‘buy-to-lets’.  This has long been particularly advisable for tenant farmers, as a retirement home, and/or investment. 

In most parts of the country residential rents have increased dramatically over recent months, as demand exceeds supply, whether in urban or rural locations.  Small houses in rural locations are vastly in demand in the counties around London, especially.

All political parties are making threatening sounds about various forms of further controls, licenses and requirements on landlords, from higher EPC requirements to longer term agreements, and restrictions on so-called ‘no fault evictions’.  What they all fail to realise is that the more restrictions are applied, the more landlords will sell up and get out.  That is exactly what has been happening.  This pressure on landlords has, of course, been exacerbated by interest rate rises on their mortgages.  

While the removal of the higher EPC rules has been welcomed by many landlords, it has infuriated others who have already invested in rental property improvements.  It just proves that one should never make such an investment until you are forced to in case what you do is either proven to be wrong later, or unnecessary.

All this change in government policy is making it even more unappetising for investors, let alone potential investors.  But what level of financial return is possible?  Firstly, bear in mind that capital growth may not be important to you at all, if the property is in the middle of your farm or estate, and you are never going to sell it.  In that case, the rate of return on your investment may be far more relevant.

Take the case of a mythical two bedroom house in the (relatively expensive) south of the country.  Assume its value is £400,000, and that you are renting it out at £1500 per month.  If the costs to you, annually, of management fees, repairs and occasional voids is 20%, then the annual income (before tax) is £14,400.  This is an annual return of around 3.6%.

There are still properties in the north and east that are valued even less than this, and one can obtain yields of anything up to 10%.  Granted, property management is not for the faint-hearted, but the returns can still be good, depending on where and when you buy.

Remember, Location and Timing are everything.     

For more information on assessing property returns, contact Charles at charlesholt@fcgagric.com or your local FCG Office.