Property Investment: Where do I start?
Property investment can feel daunting. We've put together everything you need to know in this blog post, from finance to location.
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You've undoubtedly heard success stories of how property investment has given your peers financial and lifestyle freedom. But investing in property also comes with a degree of risk and responsibility, so it's important you know what to expect if you're eager to 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?
Property remains a solid and secure investment, despite the economic uncertainty brought on in recent years. Most recently because of the covid pandemic. 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 the Halifax's September 2022 price index.On the other side of the market, rental demand has also increased, as tenants look for bigger spaces so they can work from home.
How much money do you need to invest in property?
How much capital you need to invest in property will depend entirely on:
- On the strategy you're adopting
- Your budget
- Where you're looking to buy
For buy-to-let properties and development homes, you'll inevitably pay more for a property in the South West, especially London. However, rental prices in the South West are also higher, which could be a positive financial gain. It's important to weigh up your spending budget against the returns and yield you're looking for. Whatever, and wherever, you decide to buy, you'll need to factor in at least a 25% deposit, as well as all the other costs involved in buying a property.
How will you finance your property investment?
First things first, consider how you'll pay for your first buy-to-let property. If you're hoping for a buy-to-let mortgage, you'll need a hefty deposit. Most buy-to-let mortgages currently require at least a 25% deposit. That means for a property costing £400,000, you'd need a deposit of ¬£100,000. Buy-to-let mortgages typically have higher interest rates too, so you'll need to factor in how well your potential rental income covers your monthly mortgage payments and other costs.
Consider hidden costs
As well as your buy-to-let property's purchase price, you'll also need to factor in smaller costs such as:
- Survey costs
- Solicitor's fees
- Insurance costs
- Stamp duty (if applicable)
How you'll manage your buy-to-let property
Once you're in a position where you‚'re ready to buy your first rental property, you'll need to start thinking about how you'll manage it. Or, you might want to consider if you'll get someone to manage it for you. Maintaining beautiful properties is great, but staying legally compliant is the single most important part of being a landlord.While many landlords do this privately, by using a letting agent's management services, you 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
In the UK, there are three main types of property investment opportunity: buy-to-let investments, property development, and new-build flipping.
You may have read stories saying the buy-to-let boom is over, due to legislation. Although it's true that landlords are faced with more compliance than ever before, buy-to-lets remain a great investment. Getting on the property ladder is consistently difficult for younger people, so landlords who provide stand-out rental properties will see continued demand from tenants. If you're looking for a long-term investment, where you'll generate an income as well as any capital growth, buy-to-lets could be the right option for you.
Property development can be a great short-term investment strategy. In theory, by finding a property in need of renovation work, you can add value before selling the renovated home for a profit.However, the return on your investment is subject to several 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 could be effected by changes to the market. Costs can also rise over a long period of time, all of which can eat into your profits. For example, inflation fluctuates.
Where would you even purchase a buy-to-let property?
Auctions are a hidden gem! You can buy property at value and often homes in need of work come up as lots. Buying from an auction can sometimes mean a lack of knowledge about a property so always study the information pack and try to visit the property before bidding.Like buy-to-let, you'll need to stay on the right side of your finances when developing property, too, and factor in any nasty surprises that could delay your renovation work or cost you more than you bargained for. But it's possible to make great profits in short spaces of time if you do property development well and buy low, renovate cost-effectively and sell on quickly.
New-build property 'flipping'
‚ÄòFlipping‚Äô is one of those property investment strategies that often sounds too good to be true. It's also a pretty trendy buzzword in 2022, and has several tv shows dedicated to it! Flipping sees a buyer purchase a new-build property off-plan during a development's early stages. Then, in an emerging market, they sell the property for an increased price once the build is complete.In layman's terms, flipping is a way to make money from a property with minimal effort. But it's a risky strategy for several 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) enable you to invest in property without actually becoming the owner of the asset. Instead, you invest in the trust that buys up properties and rents them out in the same you would if you were to become a landlord. You're then paid dividends based on how the trust's properties are performing.Because of the way returns are paid to investors, REITs come with certain tax stipulations, so always consult with an independent tax advisor before investing.
How do I start investing in property?
If you're keen to start investing in property, there are lots of things to consider.
Decide which property investment strategy you're going to follow
How you invest in property will depend on the amount of capital you have to invest, whether your strategy is long or short-term. And, importantly, how much effort you want to put in. If you're keen to generate an income from property, you need enough money to invest. If you have a long-term view of your investment, a buy-to-let property may be the best option. But if you have a good amount of capital to invest, you might want to consider property development. Several mortgage lenders won't allow you to borrow money to buy a property that's not ‚habitable. Finally, if you're keen to take a step back from your investment, you could consider a REIT or flipping. All property investments come with risks, so consider your options carefully and always seek expert advice.
Do some detailed research
Much of your success as a property investor will be determined by investing in the right property at the right price. Call it 'divine timing'! You'll need to consider your target market for renters or buyers and then look at suitable locations. E.g. if you're looking to target young professionals, is it close enough to a train station or bus stops for their commute? If you're looking to sell to a young family, what are the local schools like?
Become familiar with the various mortgage types
Getting a good mortgage deal can have a big impact on your profits. If you're going down the buy-to-let route, your mortgage payments will eat into your rental profits.Plus, if you're looking to buy a run-down property to develop, you may not be able to get a mortgage at all and may have to consider alternative finance or spending more of your own capital. Always speak to an independent broker or financial advisor to discuss your funding options before investing in any property.
Make the right (smart!) offer
Whether you're purchasing a buy-to-let, or a property to develop, or an off-plan new-build to flip, what you pay will be key to your success. But for investors, it's even more important as it has a direct impact on their short and long-term profits.
Choose the right solicitor or conveyance for your property investment
This is where more research is needed. As an investor, it can pay to seek out a solicitor with experience in completing investment purchases. E.g., if you're looking to buy a HMO, letting the property on a room-by-room basis, a conveyancer who specialises in shared living properties can help keep your purchase on track. Remember: the faster you can complete your purchase, the greater the boost to your profits.
Arrange¬† a property investment survey
When buying a property to develop, it's common to find nasty surprises that eat into your budget and reduce your profits. If you're looking to buy a property that needs work, complete a full structural survey. This way, you know exactly what you're buying. A full survey will explore the property's structure, flagging up any potentially costly issues with subsidence, roof problems or dampness.
Location Location Location!
One of the most important decisions you'll make as a property investor is where you want to buy.Location is critical when it comes to buy-to-let properties. You'll need to consider:
- 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
We can help with all of your property investment queries
Oasis Living properties are all serviced professionally and regularly to meet a good and efficient standard. We work a lot with our landlords to continually update and improve the efficiency of all of our properties. Find out more on how we can help you improve your property letting experience by visiting our tenant page. We offer great London properties for tenants of all shapes and sizes, with affordable rates and great locations!
One of our letting experts will ensure you get the most value from your property