Property is one of the best options if you’re thinking of investing long-term, according to many advisers and historic data.
But if you want to invest in property, planning and strategy are vital.
There are many types of investment property to consider, and your plan must suit your budget to give you the best chance of meeting your goals.
After giving some basic guidelines, we ask investment consultants and property professionals for their tips on how to get into property investment.
Dive in to find out more!
Guidelines for investing in property
Clarify your primary goal, which may be to:
- Build a balanced investment portfolio.
- Replace your full-time job with a monthly income from renting out property.
- Have extra cash flow.
- Buy and rent out a property with the aim of getting a return on investment. If so, are you prepared for managing tenants or will you use an agent?
- Do you want to invest in residential or commercial investment properties?
- Do you want to buy property to renovate and sell, or buy-to-let?
- How much capital are you thinking of investing in property?
- How will you finance the purchase? Options include savings, a buy-to-let mortgage, refinancing or buying via a joint venture partnership.
- Consider all the other costs such as property renovation works, mortgage payments, insurance, legal expenses, management fees, service charges with leasehold property, and ground rent.
- If you aim to rent out a property, think about its location and your ideal tenant – for instance, you might target the young professional market or students.
You will need a solicitor, mortgage broker, accountant, insurance broker, refurbishment company, maintenance contacts, and maybe a letting agent.
- Study the UK housing market and consider location, price, condition, and potential return on investment.
- Work out if the rent will cover the costs and provide a monthly profit margin.
- Estimate gross and net rental yields – divide the annual rent income by the purchase price to get gross yield; to get net yield, take the annual rent minus costs and divide it by the purchase price.
- Search estate agents’ websites and property auctions.
- Look at areas of growth, with good transport links and major employers such as a hospital.
- Assess demand in the area, historic sale prices, and current rental prices.
View several properties
- Work out how much work is needed to make a property rentable – a minimal amount or is it a bigger project?
- Is there potential to add value by converting the loft or cellar, or is the garden big enough for an extension?
- Calculate the cost of renovation work: this may involve getting quotes.
Prepare to act quickly
A property investor with no property to sell and finance arranged is in a good position to move fast and make a low offer on a property.
- Renovate and decorate with your target tenants in mind.
- Find a tenant by advertising the property or using a recommended agent.
- Organise the tenancy agreement – this will probably be an Assured Shorthold Tenancy agreement (AST).
- Carry out an inventory.
- Arrange landlord insurance.
- Register a tenant’s deposit with a deposit protection scheme.
Tips from financial advisers and property professionals
James Lindley, CEO of London-based financial advice firm Castell Wealth Management advises considering a wide range of properties before investing. He said:
Firstly, research what’s available and target your investments according to your needs. Some things you’ll want to take into account include rental potential, future capital growth, accessibility and potential tax breaks. Get expert advice on what kind of property would be best suited to your budget and goals.
Property investment is not limited to buy-to-let residential properties. Commercial properties are also an option you should consider, especially now that all homes in England and Wales have to reach a minimum of level C in energy efficiency by 2035. It means that if you don’t invest in a residential property that is level A, B, or C, you will need to fund an improvement to reach that level, or it will be illegal to rent it. It will create a tendency for houses with levels lower than C to be for sale because it’s not worth the investment and a demand for landlords to have properties only with levels C and above in the rental market, which can increase their value. A commercial property may be beneficial to avoid this fluctuation in the buy-to-let residential property.
Commercial properties can be for retail, office, or industrial. Do you know what type of office would be better for a specific business area? Or an industrial park in an upcoming city? A warehouse well located to ship products sold by e-commerce? Funds with assets such as retail warehouses and offices had better performance in recent years than street retail and shopping centres. Look for investments that commit to net zero if you can.
Have a clear plan when investing in the property market
Robert Jones, director of Property Investments UK, said:
Knowledge, experience, and contacts can give you a head start, but it’s not a necessity. Beginners can be successful with property but without planning and strategy, it’s very difficult to grow a successful portfolio.
When you are starting out it’s helpful to consider the Why, What, Where, When and How of property.
Why are you doing this? Do you have a specific goal and timeline in mind? Having clear targets to aim for including financial and time targets can really help you define the right strategy for you and give you a path to build your property portfolio around.
What are you going to buy? Are you going to focus on student lets or professional lets, refurbishments or ready to go rentals, houses or flats. Some of this will be guided by your budget and location, but knowing exactly the type of property you wish to buy, to align with your rental strategy, will really help you.
Where should you buy? Choosing the right location has always been the key foundation for any successful investor. A good location helps you rent your properties quicker, for better rents, and to tenants that stay longer. It also helps for re-sale if you ever wish to sell in the future. Sites like https://property.xyz/uk will help you research property locations for free to find which areas have the best price per square foot and which have the right rental yields.
When should you buy? It’s impossible to time the market. Property takes time to buy and sell and as long as you get the fundamentals right, buying in any market can create a good outcome. Many long-term successful property investors we know focus on cashflow and rental income when they are buying to hold a portfolio over the long term. So, make sure when you buy, it is for a price and rental yield that works and covers your costs.
How should you buy? Finding the very best deals can often be a needle in a haystack. But you don’t have to do everything yourself. Working with experts who source properties day in day out can really help you sift through the right property opportunities, including off market properties.
Savills lettings director Dan Parker gave his top tips for making a buy-to-let investment.
Is buy-to-let property still a good investment? In broad terms, the answer is yes. The lettings market in London and certain regional cities is likely to remain very strong over the next five years. But though investors can achieve a good rental yield and capital growth, it’s not a given.
As a rule, higher-yielding properties are typically at the lower end of the housing market. As rents increase, the number of potential tenants narrows, and yields begin to fall away. In contrast, for capital growth, values at the lower end of the market generally do not rise as rapidly for higher-priced properties in desirable areas.
The biggest challenge is the potential ‘void period’, the time when a property is untenanted during any given year. It is imperative to leave a cushion for at least some empty periods, for changeovers between tenants, and to cover costs if applicant demand temporarily slows down.
Knowledge is key
Talk to the experts. Knowing which property will deliver the income and capital growth you require takes years of experience. The experts will also know what sort of property lets most easily in any given location. They can also help you with the other essential services you will need when purchasing a buy-to-let, such as preparing property investment business plans, securing investment finance, legal letting essentials and bespoke insurance for prime residential lets.
Present your property in the best light
People prepared to pay thousands of pounds a month to rent privately expect property in perfect condition. Everything, from decor and furnishings to lighting and furniture, must be pristine. Great property can lead to fantastic tenants. It might sound obvious, but the right property, in the right location, marketed at a fair price, really will attract the very best tenants.
Maximise and protect your assets
Buying a property and letting it is not the difficult part. Making money is where it gets trickier. The skill comes in working out how to maximise your rent through maintaining and updating property, without it having a negative impact on your investment returns.
Be aware of changes to property investment returns
While legislation over the last 10 years has substantially improved the safety of rental property for tenants, it has increased costs for landlords. Securing appropriate safety certificates, complying with third-party deposit schemes and potentially having to update properties in the future to meet required Energy Performance Certificate ratings, can add thousands of pounds to your costs.
Savill’s rental forecast
Currently, supply is constrained, and demand remains extremely high, resulting in a positive outlook for rents. Household income will be the main constraint on rental growth.
Five-year forecast values.
N.B. These forecasts apply to average rents in the second-hand market. New build rental values may not move at the same rate.
Residential rental property
According to RWinvest, one of the most popular investment strategies for UK investors is a residential rental property. For first-time investors who are considering how to get into property investment, this is often the simplest form of rental income. Amy Jackson, Digital Marketing Manager and Property Editor said:
We specialise in buy-to-let and work with our investors to buy a home to rent to a tenant as a way to generate passive income.
Property investment doesn’t have to be difficult, so we spend time putting together key tips and guides for current and future investors in the hope of answering any questions when starting out on their property investment journey.
For first-time investors, it’s important to do your due diligence as investing in property is usually a long-term investment. You want to ensure it’s the right decision for you and seeking professional advice will often result in success. Industry specialists are there to help you through the process, from deciding on what type of investment you’d like to finding the best locations for your property. These are just some of the many things to consider when it comes to investing in property.
Become a property investor
If you’re ready to start investing in property, you may want to seek independent financial advice to ensure you have enough money in your budget to cover all your initial costs. A financial adviser may suggest other investment opportunities such as buying shares which you may want to consider before making the decision to get into property.
However, while there are risks involved, property is a solid investment if you accept that you need to take a long view. If you are convinced of this, start thinking about finding the right property investment opportunity for you!
If we have missed a key tip about investing in property, let us know in the comment box below.