You’ve probably heard that property investment can bring you financial freedom. Investors in real estate are some of the wealthiest on the planet; even those who use other revenues for their wealth will often use property as a solid investment asset.
Like all other investments, it comes with a measure of risk. Meaning, if you are researching property investment, you should know what to expect. Even the most knowledgeable can make errors in judgement.
This article aims to guide beginners looking to dip their toes in the world of property investment.
Is it worth investing in property?
Property has long been considered a cyclical investment with large booms and bust periods. But this should not deter a budding investor – those looking for a quick return may have to search much harder. If you are willing to invest wisely over long periods, you will have much more luck with your return.
If you are willing to do the research, put in the capital and have the patience to see out the long term, property can be a rewarding and stable investment.
Check out this article from This is Money.
Taxes have increased over the years since the housing crash of 2008, which has caused landlords to sell up and move into other areas of investment – leading to more ways of securely investing in a strong portfolio through other means.
Such as setting up a limited company to buy and manage properties or taking advantage of the changes in Right To Manage laws which give more power to leaseholders.
Ways to invest in property
In the UK, there are three main types of property investment opportunities:
- Property development
- Investing in buy-to-let
- Buying cheap and ‘Flipping’ to generate a profit
- Property Development
Unless you are in the position to back a developer, the second-best way to invest in property development is to buy in before project completion.
Continue to hold on whilst you wait for the market to rise and then sell for an increased price once the build is complete.
You may be thinking, that comes with a lot of risks – this strategy is considered the highest risk due to multiple variables affecting the market:
- Low demand or an unstable market could force you to hold on to the property or sell for a loss.
- Delays with the development lead to market changes. In rare circumstances, they can get dropped completely.
- The very fact of being classed as a ‘new’ build can cause price decreases after the property has sold.
If you are in the market for a long-term investment with a healthy income – this could be the right way to go.
Many young professionals choose to rent for flexibility or due to difficulty with getting on the ladder.
Rightmove has reported in Q3 2021 a +8.6% increase in Avg. asking rent per month.
Rising rent, more access to materials and options external property management companies make buy-to-lets an attractive investment opportunity.
The third and considerably longer process (depending on upfront capital) is to buy property (often at a lower average market cost), invest cash to increase potential returns, wait for the market to improve and sell for a profit.
Depending on experience, the amount of available cash to you and overall market availability – this strategy can be a successful way to invest in property.
What this comes down to, compared with buy-to-let investments, is the short term profits. If done successfully, you can earn higher sums of cash from selling to a buyer than the monthly return from rent. Buy-to-let offers a higher return over a longer term, which can compound when re-invested into your portfolio, giving you more capital to invest in more property; the cycle continues.
Check out this informative article for comparison.
How can I invest in property without buying?
You may have experience with owning property and not have the resources to expand your physical portfolio. Not to worry, there are more options open to you as an investor:
- Real Estate Investment Groups (REIGs)
- Real Estate Investment Trusts (REITs)
- Online real estate platforms
To learn more about these investment strategies, we recommend reading this article by Investopedia.
How do I start investing in property?
As a beginner, you will have plenty of questions about where to start.
Building a solid portfolio to see the best return on investment is every property investors main priority, but how can you ensure you get the foundation right?
There’s no investment without capital – consider how you will pay for your first property.
You may use a buy-to-let (BTL) mortgage, be mindful as some estate agents and property management companies may not sell unless you are a cash buyer, as the property may not meet the general criteria of most lenders.
A BTL mortgage will also require a larger deposit than a regular mortgage, up to 25% more – they also come with higher interest rates which you will need to factor into your long-term investment strategy.
Once you have financed the upfront costs and calculated interest rates, you must also consider any fees involved with the purchase – these include:
- Survey costs
- Solicitor fees
- Insurance costs
- Stamp duty
You should also be prepared for the ongoing fixed costs associated with any leasehold property, these would typically include:
- Ground rent
- Service charge
- Maintenance – allow for between 5 and 10% per annum.
- Council tax for void periods.
- Income tax or corporation tax
The UK market is fantastic for investing, do thorough research on areas where the variables are right. Study the area – is the council investing in development or regeneration? What are the average house prices? Are there good transport links? Use calculators to work out the average rental rate and even look at the yields from agents.
Once you are the proud owner of an investment property, your role is to ensure it’s well managed.
If you have the time and resources available, you can take on this responsibility – this can become a full-time job; you are likely investing your money to gain more time and financial freedom, not sacrifice it.
Professional property management companies, as well as many estate agents, are now offering these services. As the change in Right to Manage laws came into play, this gave more control to leaseholders.
Using a property or block management service can provide you with:
- Tenancy agreements and renewals
- Rent collection
- Maintenance and emergency work
- Inventories and property inspections
A good property management company will also ensure:
- High quality, fully referenced tenants
- Compliance, policy & procedure and legal updates
- Deposit security and legislation
- Full health & safety, fire, carbon monoxide and gas & electric inspections
If you are interested in becoming a leaseholder or require block management services, contact us today to discuss your options.