Property Investment: Where Do I Start?

There are tons of stories out there about people’s successes when it comes to their property investment experience. From them, you have heard how it has granted them financial stability and lifestyle freedom. But did you know investing in property also comes with a degree of risk and responsibility? So if you are eager to join in on the fun, it is important to know what to expect before you invest in property for the first time.

This detailed blog post explains how to invest in property, the varied opportunities that are available to you and everything you’ll need to consider before you take the plunge!

Is Property Investment Worth the Money?

Even though we have had continuous economic uncertainty over the recent years, including the COVID pandemic, investing in property still remains solid and secure. Property prices in the UK have relentlessly skyrocketed since 2020, with the stamp duty ‘holiday’ fuelling buyer demand, with nationwide growth of 8.8% reported in Halifax’s June 2021 price index.

On the other side of the market, rental demand has also increased, as tenants look for bigger spaces. The demand for this has been down to more people opting-in to work from home.

How Much Capital Do You Need to Invest in the Property?

There are different factors that could determine how much money/income you will need to invest in the property you want. This will depend on:

On the strategy, you’re adopting
Your budget
Where you’re looking to buy

For buy-to-let properties and development homes, it is inevitably you will put more money in if you are looking for a property in the South West, especially in London. When it comes to the rental market, the high prices in the South West could be a positive financial gain for you in the long run. It’s important to weigh up your spending budget against the returns and yield you’re looking for. When you decide which property looks like the perfect one for you, you’ll need to factor in at least a 25% deposit. This does not include the other costs involved in buying a property.

How will you finance your property investment?

Great news, you have decided to purchase your first buy-to-let property. Now it’s time for you to consider how you are going to pay for it. If you’re planning for a buy-to-let mortgage, you’ll need a hefty deposit. The majority of buy-to-let mortgages require a 25% deposit. If the property you are looking at is £400,000, that means a £100,000 deposit is required. Because buy-to-let mortgages typically have higher interest rates, you must consider how well your potential rental income will cover your monthly mortgage payments and other costs.

Consider hidden costs

In addition to the purchase price of your buy-to-let property, you’ll need to account for additional expenses such as:

Survey costs
Solicitor’s fees
Insurance costs
Stamp duty (if applicable)

How you’ll manage your buy-to-let property

When you’re ready to purchase your first rental property, you’ll need to consider how you’ll manage it. You could also think about hiring someone to manage it for you. Maintaining beautiful properties is important, but staying legally compliant is the most important aspect of being a landlord.

While many landlords do this on their own, using a letting agent’s management services can help ensure that you:

Get great tenants in your property, who are well referenced
Remain compliant with more than 150 pieces of legislation, including gas and electrical safety
Fire, smoke and carbon monoxide safety
Deposit legislation
Right to Rent rules

A decent letting agent will also look after:

Tenancy agreements and renewals
Rent collection
Maintenance and emergency work
Inventories and property inspections

Types of property investment

There are three types of property investment opportunities in the United Kingdom: buy-to-let investments, property development, and new-build ‘flipping.’

Buy-to-let properties

You may have heard that the buy-to-let boom is coming to an end due to legislation. Although landlords face more compliance than ever before, buy-to-let remains a great investment. Getting on the property ladder is consistently difficult for younger people, so landlords who provide standout rental properties will see continued demand from tenants. If you’re looking for a long-term investment that will provide you with income as well as capital growth, buy-to-let properties may be the right choice for you.

Property development

Real estate development can be an excellent short-term investment strategy. In theory, by locating a property in need of renovation work, you can add value before profitably selling the renovated home.

However, the return on your investment is dependent on a number of factors, including:

The amount you paid for the property in the first place
Any costs accrued from renovation work and labour
How quickly any building work is completed
The current market conditions and demand from buyers

The more time you spend renovating, the more likely you are to be affected by market changes. Costs can also rise over time, all of which can eat into your profits. For example, fluctuations in inflation.

Where would you even purchase a buy-to-let property?

Auctions are a hidden treasure! Property can be purchased at a discount, and homes in need of repair frequently appear as ‘lots.’ Purchasing at an auction can sometimes indicate a lack of knowledge about a property, so always read the information pack and try to visit the property before bidding.

You’ll need to stay on top of your finances when developing property, too, and account for any unpleasant surprises that may cause your renovation work to be delayed or cost you more than you bargained for.

However, if you do property development well and buy low, renovate cost-effectively, and sell quickly, you can make a lot of money in a short period of time.

New-build property ‘flipping’

‘Flipping’ is one of those sound-too-good-to-be-true property investing ideas. It’s also a popular buzzword in 2022, with multiple TV series devoted to it! During the early stages of development, a buyer purchases a new-build property off-plan. The property is then sold at a higher price in an emerging market once the construction is completed.

In layman’s terms, ‘flipping’ is a method of profiting from a property with little work.

However, this is a dangerous method for various reasons:

In a crumbling market with low demand, you could be stuck with a property you can’t sell
The building process could be delayed, and the market could change in the meantime
New properties can drop in price if they’re sold quickly by their first owner as, technically, they’re no longer ‘new’

How can I invest in property without buying?

Real Estate Investment Trusts (REITs) allow you to invest in real estate without really owning it. Instead, you invest in a trust that acquires properties and rents them out in the same way that you would if you were a landlord. You are then paid dividends based on the performance of the trust’s properties.

REITs have certain tax implications because of the way returns are given to investors, so always contact an independent tax professional before investing.

How do I start investing in property?

There are numerous factors to consider if you want to begin investing in real estate.

Decide which property investment strategy you’re going to follow

The amount of capital you have to invest and if your goal is long or short-term will determine how you invest in real estate. And, maybe most crucially, how much work you wish to put in.

If you want to make money from property, you must have enough funds to invest. A buy-to-let property may be the ideal option if you plan to invest for the long term. Alternatively, if you have a lot of money to invest, you should think about property development. Several mortgage lenders will not grant you money if the property is not ‘habitable.’ Ultimately, if you want to take a break from your investment, try a REIT or ‘flipping.’

All property investments carry risks, so carefully analyse your options and always seek expert advice.

Do some detailed research

Investing in the appropriate property at the right price will decide much of your success as a property owner. Analyze your target market of tenants or buyers before looking for suitable sites. For example, if you want to attract young professionals, is it convenient to a railway station or bus stop? What are the area schools like if you want to sell to a young family?

Become familiar with the various mortgage types

Obtaining a decent mortgage arrangement might significantly impact your income. If you pursue the buy-to-let approach, your mortgage costs will eat into your rental revenue.

Additionally, if you want to buy a run-down property to renovate, you may not be able to secure a mortgage at all and will have to consider other financing or investing more of your own money. Before investing in any property, always consult with an independent broker or financial counsellor to examine your financing possibilities.

Make the right & smart offer

Whether you’re buying a buy-to-let, a property to develop, or an off-the-plan new-build to ‘flip,’ the price you pay is critical to your success. But it is even more significant for investors because it has a direct impact on their short and long-term profitability.

Choose the right solicitor or conveyance for your property investment

More research is required in this area. As an investor, it can be beneficial to seek out a solicitor who has completed investment transactions. For example, if you want to buy an HMO and rent it out room by room, a conveyancer that specialises in shared living homes can assist keep your acquisition on track. Remember that the faster you complete your purchase, the higher your profits will be.

Arrange a property investment survey

When purchasing a development site, it is typical to encounter unpleasant surprises that eat into your budget and lower your revenues. Complete a detailed structural survey if you’re seeking to buy a property that requires work. You’ll know exactly what you’re getting this way. A complete examination will investigate the structure of the house, highlighting any potentially costly issues such as subsidence, roof difficulties, or humidity.

Location Location Location!

Where you want to buy is one of the most essential decisions you’ll make as a property investor.

When it comes to buy-to-let houses, location is everything.

Consider the following:

Property prices in your investment area
Average rent prices in that area
Rental yields
Potential regeneration or investment in the area in future years
Transport links and employment in the region

How We Can Help

Robert Manning is all expertly and routinely serviced to ensure a good and efficient standard. We collaborate closely with our landlords to update and increase the efficiency of all of our properties. If you have recently acquired a new property and are looking for a property management service, contact us on 0203 725 8399 or email us to find out how you could benefit from our service today.