How to Get into Property Investment – Practical Tips
If you’re wondering how to get into property investment, in this article we cover some tips that can help you get started as well as grow your property business.
A property investor is involved in the ownership, rent and/or sale and management of real estate for profit. Overall, real estate performs well as an investment, tends to be less risky and volatile than the stock market and can be a good source of cash flow and capital gains if you invest in the right area and right property.
How to Get into UK Real Estate as a Property Investor
Buy-to-let investments are some of the best assets if you want to make money from property – whether boosting your income with one or two properties or growing a property portfolio. As the owner of a property, you stand to benefit from any rise in value when it comes to selling – known as capital gains, and, at the same time, if you rent your property out to tenants, it can generate monthly rental income.
2021 saw rental and house prices rise to their highest ever levels in the UK. Thanks to this record-breaking year, investors saw higher returns than ever before. Average rent now sits at £1,053 per calendar month and the UK property market is presenting a wealth of opportunities for investors.
Real estate appreciation tends to happen in areas with growing populations (meaning property becomes scarcer) or where redevelopment is taking place (making the area more attractive to live in). There are plenty of towns and cities across the UK that currently meet these two criteria.
How Much Do You Need to Get Started?
According to Savills, house prices in the UK are expected to grow by 3.5% in 2022 due to economic growth and a shortage of homes. With property values predicted to rise by 21.5% by 2025, now is a great time to take advantage of growth to get significant returns down the line.
If you’re wondering how to get into property investment, generally, the first step is to have enough to cover a downpayment on a mortgage (although you may be in the lucky position of being able to buy a property outright). Typical property finance options see lenders require at least 25% of the property price down, and sometimes a higher down payment of 30% may be required depending on the property and your financial situation.
While deposits can be quite high, there are a number of areas of the UK where it’s possible to find cheap property. For example, in Liverpool, it’s possible to find a property for as little as 50k. House prices in Liverpool remain relatively low, but a housing boom in 2021 saw a 6.3% rise compared to 12 months previously, and growing demand is pushing property prices up, so we’re unlikely to see prices stay at these low levels over the long term.
What are the Property Types Investors Should Consider?
There are a number of different property types that investors can look into for their first property. The type of property you choose will depend on your situation and goals.
Residential properties include houses, apartments and holiday homes where someone pays you to live in the property, with most leases on a 12-month basis. Residential property is the most popular strategy in UK real estate investing and housing is always in demand. It’s relatively easy to get started in residential property investment, and investors can earn two types of returns through monthly rent and capital growth.
Student buy-to-let involves purchasing a property to exclusively rent out to students – either purpose-built student accommodation or a house of multiple occupancy. Often student houses are more affordable than normal residential investments and rent can be up to 20% higher, meaning returns can be significantly more. Although you are limited to one tenant group, if you invest in student accommodation in a university town you often see steady demand. Find out more about the benefits of investing in student property in this article.
Off Plan Properties
Off-plan properties are those still in the construction stage. One benefit of off-plan properties is that they can often be had for below-market rates. In some cases, it’s possible to find an off-plan property at 20% – 50% below market value. Due to lower prices, there’s more room for capital growth, and some companies will even provide assured rental yields. Find out more about the benefits of off-plan property here.
Property Investment Tips for Beginners
If you’re ready to invest in property, there are a few pieces of advice that can help set you in good stead before making your first purchase.
Understand the Costs
Buying a property outright can require a large amount of funds, but if you have the money or are willing to take out a mortgage, the returns can certainly be worth it. Making money from your investment does take effort and you might need to be prepared to invest money to cover additional costs like yearly upkeep, taxes and property upgrades. It’s important to know what you are getting into and the real-world costs of your investment to ensure you don’t face any surprises along the way.
Focus on Growth
When you invest in a property, you may eventually want to sell it, and you’ll want to make sure you can do so for a profit. Investing in property is less about your personal preferences, i.e. whether the property is to your taste, and more about whether it makes a sound investment.
Whether you flip the property or hold on to it to see its value rise, focus on properties that will grow in value by thoroughly researching tenant demand, property price growth of the area and if the area is a popular place to live. You can increase the value of your property by making upgrades or additions, just make sure you understand those that will make you the best return.
Crunch the Numbers
When it comes to property investment make sure you carefully keep an eye on cash flow. Ideally, your rental property should cover its own expenses, like mortgage repayments and repairs. Take your time and perform due diligence before deciding if the property is right for you and if you don’t have access to the time and resources needed, it might be worth hiring a property investment company to assist you.
You can find more tips for first-time investors in this article: 8 Property Investment Tips for First Time Property Investors.
How do you Expand a Property Portfolio?
If you want to run a property business, before you begin to add property to your portfolio, it’s important to have things right from the start. Your first property is arguably the most important, and while you may not buy a winner immediately, you don’t want to have a property that sees you losing large amounts of money either. The best advice is to start with smaller deals and cheaper properties in order to become more experienced and knowledgeable before moving on to larger investments.
Once you own a property, it’s possible to speed up your property portfolio growth by leveraging the equity you have in the existing property. While saving up for down payments on a mortgage can be a slow process, if you are able to tap into the equity you have in your portfolio you can use it to gain more streams of income. Positive cash flow will enable you to pay off your loans – with every property you are growing your passive income to reinvest and cover expenses.
When to Add More Properties to your Portfolio
When it comes to growing your portfolio, it’s important to have a long-term investment plan. If you want to make more money than the average investor then you need to have an end goal in mind and a path to help you get there. Just having a sound investment strategy will enable you to know the types of property to invest in and when, narrowing your target market to those that will work best for you.
When adding properties to your portfolio, good advice is to diversity. By spreading your investments over different areas and different types of investment, you increase your chance to obtain capital gains and rental growth. If one area you invest in experiences flat rental rates and capital growth, other suburbs may experience growth which can ensure your portfolio remains profitable.
How to Get into Property Investment – Areas to Start
What are some of the areas of the UK that those wondering how to get into property investment should look into? Below we highlight two areas and specific properties that are worth considering.
Leeds is one of the best places in the UK to be a landlord with lower-than-average property prices and higher-than-average monthly profits. Rental prices in Leeds are set to increase 14.2% by 2025 and the city is set to experience 21% economic growth in the next decade. Located in the sought-after Southbank, Springwell Gardens will become an icon on the Leeds skyline upon completion in 2023, providing a level of luxury that has no equal in the city, making it one of the most exciting investments in the north of England.
Bracknell is the number one location for future property price growth in the south of England. Just 50 minutes to Central London by train and 30 minutes from Heathrow, Bracknell’s popularity has been growing over recent years, and with tech companies such as Dell, Vodafone and Hewlett Packard calling it home, this city on the commuter belt offers investors plenty of prospects. If you’re wondering how to get into property investment, Bracknell is still affordable and with 17.5% capital growth projected over next 4 years, owning a property here could be a great start.
If you’re wondering how to get into property investment, hopefully this article has answered some of the questions you may have when starting out. Remember to do your research, find areas that have a growing population and are undergoing redevelopment – strong indicators of capital growth and rising rents. To find out more about investing in your first property, get in touch with us today.
What is the purpose of a property portfolio?
For most investors, building a property portfolio is a means to an end – to gain financial freedom, increase monthly income or save for retirement. Real estate is generally stable and profitable, which is why it remains popular as an investment strategy in the UK.
How much real estate should I have in my portfolio?
The number of properties in your portfolio will depend on your goals and situation. Realistically, most investors are constrained by mortgage ability and deposit funds. The bigger your portfolio, the more work it is to manage and fund. Often, a smaller but higher-quality portfolio is the best way to balance risk, effort and financial reward.