Last updated: 6th July 2020
Supply and demand is one of the most important factors to consider when investing in buy-to-let property.
It’s easy to get lost in discounts and focus on the fundamentals, but a deal can have all of these things and you could still end up with an empty property.
Why?
Because there’s no demand.
Supply and demand plays a huge part in getting your property let, and just like the property cycle, the rental market can also have its own cycle.
So, how does supply and demand work and why is it so important?
Ultimately, it depends on the market conditions in the area at the time. Demand for areas can change. And this is also worth considering when investing in off-plan property.
Like property prices, the rental market changes frequently. If you have a property that’s located in a popular student area of a city centre, there are going to be certain times of the year when tenant demand is high, and other times when it is low.
For example, city centre areas that have strong student populations will usually experience a surge around June to September when there’s an influx of students moving in before the term starts.
Naturally, peak times could command higher rents due to the demand. So if you’re hell-bent on achieving the higher end of the scale, it’s worth timing your occupancy to coincide with the more popular rental cycle to stand the best chance of this happening.
Additionally, if the supply of rental property in the area is limited, this could also mean higher rental figures as competition is likely to be high to secure a property.
On the flip side, if there’s an over-supply of rental property in your area, you might need to work harder to get your property rented, even at peak rental times. You’ll need to make sure your property stands out, not only in presentation but also on your advertising. This university course will help you with all of that.
Supply and demand don’t always go hand in hand. There will always be times when one is present without the other.
When demand for a specific type of home is high, the number of interested tenants per property increases, pushing up rental prices in the area.
But when there’s plenty of stock available and they’re all competing for the same tenants (and there’s fewer tenants around), landlords might have to get competitive with their pricing.
The ideal scenario is if you’re planning on investing for the long term. In this situation the perfect areas to invest in are those where demand is high and supply is good – these two factors work hand-in-hand to give decent returns and that all-important steady capital growth.
Property is a long-term investment, so a pure focus on rental income will only take you so far – capital growth is where the magic happens. We talk more about this in this free course. However, if you need to achieve a certain figure to help your cash flow, this article on how to calculate yield might help.
The number of people renting homes in the UK has increased by 63% in the last 20 years. Growing from 2.8m in 2007 to 4.5m in 2017.
Typically, those that tend to rent are in their mid-twenties to thirties, however more people in their mid-forties to fifties are now renting than we had in 2007, so this is clearly an upward trend.
Most demand for rental properties is more evident in major towns and cities as generally those that want to live centrally are working professionals wanting to be within commuting distance to their place of employment.
With this in mind, it’s worth researching an area and analysing your target rental market thoroughly before purchasing a buy-to-let investment property. Rightmove and Zoopla have resources available for looking into the rental demand of an area, but you should also consider these key fundamentals which is what tenants usually take into consideration when looking for somewhere to live.
At the time of writing, the UK (and indeed the world) are in the middle of a world-wide pandemic (COVID-19) and the property market is a hive of activity after 3 months of pent-up demand while the UK went into lockdown.
The market reopened to a surge in rental demand with Rightmove experiencing over 6 million visits to the site (13th May 2020) – 18% higher than last year, of which 28% had no plans of moving before lockdown.
Rightmove’s Director claimed that there were a number of reasons why demand for rental properties surged. Mass job relocations and more space needed to work from home were just a small selection of reasons, in addition to the changes in personal circumstance for many.
Regardless of the effect of the coronavirus, supply and demand will always be one factor that will continually contribute to the performance of your investment property. Research will be your best friend here.