Are you interested in property investment but unsure where to start? Our ultimate guide to UK property investment includes all the essential information that you need to know to start your journey and begin building your portfolio.
Why invest in property / real estate?
Property investment, particularly in the UK, can provide you with strong, predictable returns. The profit on offer combined with the stability of the market makes property perfect as a medium- or long-term investment.
These profits can supplement your existing income, or even become your only income if your portfolio is large enough and planned wisely. Furthermore, property investment is often used for retirement planning to ensure that the investor can have a reliable income stream following the end of their working life.
Why invest in residential property specifically?
The stability of the UK residential property market stems from the simple fact that people will always need somewhere to live. While the high street can be changeable and restaurant trends can change, housing is a fundamental human need.
Combine that with the ongoing shortage of supply and you have a recipe for strong, reliable profits and future capital growth. This is particularly the case in the busiest city centre markets – such as Manchester and Preston – where demand is extremely high and homes cannot be built fast enough to meet it.
Additionally, these city centre areas often provide a range of property types and sizes to choose from which makes it more likely that there is something within your budget, no matter how large or small it is. By providing accessible entry prices, residential property investment is open to a much broader range of people than commercial or industrial property, for example.
Finally, residential property is likely to be more familiar to you. There is less technical jargon and it requires less experience for the first time property investor who has either purchased or rented a property of their own in the past.
Should I buy completed property or off-plan property?
The two main types of property you can purchase as a buy to let investment are completed properties and off-plan properties. The former is exactly what you would imagine – homes that are completed and suitable for occupation immediately. The latter means you are purchasing before the property is completed – i.e. “off-plan”.
Both have their advantages which should be carefully considered. Completed properties are ready to go immediately and will begin generating rental income as soon as you can secure a tenant. You can also be completely sure that what you see is what you get with a completed property – there is no mystery involved.
Off-plan properties come with many advantages. The main one is that you can normally buy a property at a lower price as you are dealing directly with the developer. Due to this, over the course of the build you will earn an even greater level of capital appreciation than you would by purchasing a completed property. Buying off-plan also means that you will have your pick of the properties under construction if you act fast enough, meaning that you can enjoy and even greater degree of choice.
When it comes to renting your property, buying off-plan means that you can line up a tenant ahead of completion to negate any worries about initial void periods. You can then begin earning as soon as it completes. Related to getting a tenant is the fact that off-plan properties come with a level of customisation that completed properties do not. Whether it is the furniture, the blinds or even occasionally the layout, buying off-plan means you will be able to fine tune your apartment to appeal to your ideal tenant, enhancing your chances of securing a higher rent on a longer-term contract.
Finally, while you cannot visit an off-plan property immediately to see its finished state, you can mitigate this risk by doing your due diligence on the developer. If they have a track record of producing high quality properties then you do not need to worry as much. Likewise, many developers will open a show flat early to demonstrate quality, or they will allow you to visit another comparable property they have built previously for the same purpose.
Do you have enough capital to invest? Do you need a mortgage?
When investing in UK property you will need to have a certain amount of capital on hand initially. This includes money for the deposit and the first stage payment – both of these are variable amounts and you should check with the developer or sales agent when enquiring about an off-plan property. There could also be later stage payments, followed by the final payment upon completion of the property and handover.
These latter stages can be done via a mortgage, but you will need to arrange that privately. All of this will depend on your income, how much a mortgage firm is willing to lend you and what time frame you are looking at. As always, please seek the guidance of a financial advisor if you are unsure.
What is a good rental yield and how can I get one?
You should always find out what the projected yield is before purchasing and make sure that it fits with your investment goals.
To learn more about what a good rental yield is and how to get one, please read our article on this subject >>
Is rental yield better than capital appreciation?
There is no correct answer to this, but it should be noted that the two are not in opposition. It is perfectly possible to achieve a high rental yield and also enjoy rising property prices which will pay off if and when you sell the property on.
In more established markets like London, a high rental yield generally means that you will have to sacrifice some capital appreciation. Property prices generally rise faster in newer markets, while rents tend to be higher in more mature markets that are established as popular and desirable.
However, London is not the be all and end all – there are other markets in the UK which manage to provide high rents and rapid property price growth. For example, Manchester city centre hits that sweet spot between established and rapidly growing which means you can have the best of both worlds. If you can find an established market which has a growing population and issues with supply – particularly in the luxury city centre market – then you are likely to find success.
In other words, there is no need to choose between rental yields and capital appreciation in most cases.
Do I have to manage my investment property personally?
When you invest in a property and are looking for a tenant, there is a lot of work to undertake. Furthermore, once you have secured a tenant you have obligations as a landlord that must be fulfilled. These can be time consuming an include the following:
Those are just a few of the things that you must take care of, making it no surprise that many landlords choose to take a hands-off approach and employ a lettings and management agent to take care of everything.
For a small monthly percentage of the rental income, you can have all the benefits of being a landlord with none of the hassle. Searching for the right letting agent requires due diligence, but most developers can recommend a good one.
Those are our top tips for investing in property, and if you require more information our team of experts are ready and waiting to help you take your next steps.
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