There are several reasons why you may wish to invest in buy-to-let.

According to ODPM housing statistics and the Barclays Capital Equity Guilt Study, residential property is the asset class that has performed the best of all in the UK over the past half-century. In real terms, it was shown that £100 invested in residential property in 1930 would have grown to £767 by 2004. This compares to only just over £363 for a portfolio of shares.

The rules of supply and demand also continue to favour incoming buy-to-let landlords. The latest Office for National Statistics figures estimated the UK population to be over £61m as of mid-2008. It is, aided by immigration, forecast to rise to 65 million by 2016, reaching 71 million in 2031. At the same time, however, house builders have failed to keep up with the country’s resultant ballooning demand for residential property, with projections suggesting that they will continue to fall short by an average of 33,000 properties each year. With the decline in availability of mortgages and the elevating price of a deposit, prospective first time buyers are therefore increasingly being forced to rent for affordability reasons. Indeed, recent reports such as the March 2010 English Housing Survey support a general feeling that Britain is moving towards a model of widespread long-term renting akin to that of parts of continental Europe, with the number of renters in England having increased from 2.1 million to 3.1 million between 2001 and 2008/2009.

There are also reasons to invest in buy to let that concern trends in this population’s lifestyle. In an increasingly individualistic society seeing ever greater levels of family breakdown, young people are increasingly favouring marrying and starting a family later in life, placing an emphasis in the meantime on a freer lifestyle in their 20s and early 30s. Many are therefore keen to avoid the constraints and/or responsibilities of homeownership, opting instead to rent. Employers are also increasingly requiring greater mobility from their employees, who are more often called upon to work for short times away from home. A diverse, dynamic and flexible rental sector is therefore required to meet these needs.

There are various reasons over the years why investment in this type of private rented property has not always been forthcoming. One reason is the sheer managerial burden that residential property presents compared to commercial property: while several million pounds could be invested in just one commercial property with a single tenant occupying for the building for as long as decades, an equivalent investment in residential property could entail the purchase of tens of properties for only hundreds of thousands of pounds each. The money and time required to successfully manage these properties and their tenants could be considerable. With the private rented sector’s decline partly being halted by its 1980s deregulation, finance for investment is now also easier to find, aided by the likes of the Association of Residential Letting Agents’ (ARLA) Buy-To-Let scheme, which is backed by a panel of mortgage lenders. The sector is now buoyant, according for around 12% of residential accommodation where it had once been less than 10%.

However, even if it makes sense to invest in private rental residential property, it may not be a wise move to ‘put all your eggs in one basket’. There are various risks associated with investing in any kind of rental property. These include the natural fluctuations that affect the market as much as it does any other; property values are more than capable of doing down as well as up, having so notably done so in the early 1990s UK property market, as well as in the Japanese property market more recently. Having alternative investments in your portfolio, such as deposit accounts and shares, can hence make a great deal of sense outside the rental property market’s boom times. It is also good to take out landlord insurance.