Please note when institutional investment occurs in the buy-to-let sector it is referred to as PRS or "Private Rented Sector" investment. This is a working copy which we will continue to add to and update, but please feel free to comment below on any aspect or element of research you'd like to see included in the future. Investment Case The case for investing in the Private Rented Sector (PRS) has been promoted for some time by institutional investors. The sector demonstrates long term out performance and lower downside risk. Source:IPD/ However, residential property accounts for just 2% of institutionally managed portfolios despite equating to 85% of the UK build environment. There are several barriers to entry for institutional fund managers: Peer group risk – institutional weighting to...

This chart shows that the buy-to-let sector offers better value now than at any time between 2000-2008 for mortgaged backed acquisitions.

At LiveYield we are interested in explaining the residential property market from an investment analyst's perspective. Indexing yield on an historical basis allows investors to benchmark their income returns and compare performance versus other asset classes. The current average gross rental yield on a residential property in England & Wales is 4.5% and by using data from the Land Registry on average house prices together with the historical movement in rents we can reverse engineer the index below. Using the rental growth index from both the ONS and the rental component of the CPI we can chart yield historically. We see yields fall steadily since 1996 as house prices increase at a faster rate than rents. This continues until 2004 when rents and...[1].pdf

The UK’s housing stock is worth £5.75 trillion, 40% larger than the total market cap of UK shares listed on the London Stock Exchange. The private rented sector (PRS) equates to £1.2 trillion, or 1.3 times the size of the entire UK commercial property market.

Growth of owner occupier market versus private renting.

Enabling landlords to charge a full market rent, together with a reduction in security of tenure increased investment in to the sector and lay the foundations for the growth within the PRS.

House prices in England and Wales versus rents and other cost of home ownership

This chart shows that: The cost of electricity, gas and other fuels has risen much more strongly than house prices. House prices represent good value versus energy costs. Rents and maintenance costs have kept pace with with house prices. The volatility of capital prices v consistency of rental growth. Rents tend not to fall as house prices can. Relative to each other, house prices, rents and maintenance cost the same today as they did in 2003 and 2008. How your point can be proved by choosing the time period.

New research from LiveYield reveals insights into gross rental yields across Great Britain. With persistently low returns for savers showing no sign of abating and attractive buy-to-let deals available, this real-time tool identifies buy-to-let hotspots at a postcode district level.

The table below represents property fund investment options available via an IFA or fund supermarket. Almost all the indirect routes invest in commercial real estate as opposed to residential and some give exposure by themselves investing indirectly i.e. via other funds or listed equities. We will explore the pros and cons of this later, but essentially there is another level of management (and therefore fees), stock picking and diversification at play. The fund that that enables investors to gain access to residential real estate is the Hearthstone Fund, which we will look at in closer detail in the coming weeks. Feel free to play with the table below, it reflects recent data as of December 2014, but it's not live. The majority of information here will be updated...

The chart shows the range of residential rental yields at a district and post code level. It shows that averages can hide a lot of variance and supports the premise that property investment strategy can be structured at a macro level, but must be executed on a micro (local) basis. It is worth noting that a low yield regions such as London still contain postcodes with a high income return which can be a signal of undervalued property. It is also sensible to pay attention to regions with the highest variance in yields at a local level. Applying this logic Scotland, the North West of England and Yorkshire and the Humber are likely to provide some areas worth investigating.

A simple scatter graph illustrates the relationship between yield and price at a post code level. It shows that lower value properties tend to be higher yielding, suggesting that buy-to-let investors should consider searching for lower valued property in a specific location to maximise income return. Any investment strategy should however also consider how intensive this maybe from a property management perspective.