Property Investment – Everything You Need to Know About In 2023

In short, a property investor is anyone who owns property with the goal of using it to make money.

Although the majority of property investors already own their own homes before they invest, some purchase investment properties as their first property.

Property investors collect the rental income from their properties if they are buy-to-let, as well as manage their properties to ensure they will get a strong return on their investment.

If you want to learn more about what is a property investor, read our blog post on this topic.

While property investment is a potentially very lucrative investment strategy, it may not be for everyone.

The UK property market is famously stable, and with house prices set to rise by 17.4% by 2026 according to Savills, there is the potential for some major profit from selling properties.

For many potential investors, property offers a great mix between strong returns and a steady market, but you have to make the choice yourself.

Even the most affordable investment properties are a sizeable investment. While you can use a buy-to-let mortgage or payment plan to spread out the cost of investing, you will still need to be able to have a sizeable amount of money available to spend up-front.

This naturally has many asking the question if investing in property is worth the cost, when there are other options for investors that have much lower entry costs such as stocks or cryptocurrency.

Given the combination of increasing capital growth and rental prices, investment properties are by and large worth the higher entry cost.

Some areas of the UK, such as the North-West, are predicted to have house prices increase by up to 24.3% by 2026, according to property experts Savills.

This means that if you buy an investment property in Liverpool for £200,000 now, you could likely be able to sell your property for a profit of over £48,000 in 5 years’ time.

When planning an investment strategy, this is naturally a question you need to be asking. With so many options for investors currently out there, and new ones sprouting up constantly, you need to ask yourself if property is the best investment option for you.

While other investment options like stocks or cryptocurrencies have the potential for massive returns in a very short time period, they also run the risk of crashing and of you losing your money.

Forbes reported in October 2022 that the CEO of JPMorgan recently issued a ‘stark warning’ of growing market panic, which could cause cryptocurrencies to plummet in value in the near future.

If you are looking to invest in property but want a short-term investment, try looking at Real Estate Investment Trusts, or REITs. These operate like stocks and allow you to invest in property for much less than buying a full property.

In contrast to this, the UK housing market saw the average property price rise to £296,000 in August 2022, an increase of £36,000 from 12 months before.

While other investment options come with higher levels of risk, the UK housing market is famously stable, meaning your money is likely at less risk. Due to property being a physical asset, it is unlikely to decrease in value rapidly.

Add into this the multiple income streams that property can generate for you, and you can see why this is such a popular method of investment for many. You will need to pay income tax on your rental income, but this is not likely to be a large portion of what you take home.

Thanks to this combination of security and long-term passive income, many investors believe property is one of the best things to invest in right now, as they can sit back and see the returns coming in without worrying about their investment losing value.

For more information, read our guides on ‘is property the best investment?’, ‘how to invest £30k’ and ‘how to invest £75k‘.

Investing in property can be a challenging journey for beginners, with so many questions that need to be answered and problems to be solved.

How do you work out your budget? What kind of properties are best to invest in? Where in the UK should you look at investing?

It is very easy to get overwhelmed, but as a beginner, you should start by determining your goals when investing. Are you looking for a passive income over time or to focus on capital appreciation and making a larger profit when you resell the property?

This way, you can understand what you are looking for when investing and focus your research on properties that are more likely to help you achieve your goal.

You should also set a strict and cautious budget for your investment fund. While the housing market is comparably stable when held up against other investment options, there are still risks.

You may not be able to find tenants for your property, or there may be problems with the development if you are purchasing off-plan property. There may also be damage to your property over time.

If this happens, you want to ensure you have the funds to look after yourself or to correct the issue, so keeping a tight budget is important.

You will also want to consider the different financing options available to you when you begin investing in property. While paying the full cost of the property upfront means you can spend the returns as you wish, it may not be affordable for you.

This is when buy-to-let mortgages come into play. Borrowing a buy-to-let mortgage allows you to spread out the cost of investing by paying off the accrued interest each month as your monthly mortgage repayments.

Another financing option to consider is using a payment plan. This way, you do not need the full amount right away and can still fully own the property yourself by the time it is ready for tenants.

For a more in-depth look at this topic, read our guide on investing in property for beginners here.

Once you have purchased an investment property, the next step is managing it.

This involves several aspects, all of which are important to ensure you will return a profit from your investment.

• Finding tenants for your property
• Drawing up contracts
• Collecting rental income
• Maintaining the property
• Resolving any issues your tenants have
• Understanding and following rules and regulations

This is not an exhaustive list, but as you can see, managing a property is a lot of work. While it may be rewarding for some to put their time into their investment property, it may not be what other investors have in mind for their strategy.

It is a good way of understanding your duties as a landlord if your investment goal is to establish a portfolio of properties, but this may not be your goal when investing.

If you do not want to manage your investment property yourself, you should probably consider using the services of a property management company.

Property management companies take the stresses of managing investment properties out of your hands and handle the landlord duties for you in return for a cut of the rental income each month.

Although this will be taking some of the profit out of your pocket, it makes up for it in the time and energy you are able to save and redirect towards other ventures.

They will have a professional understanding of the property market and the duties that come with managing a property and will set the rent at the best rates for your property to ensure you receive the most rental income possible.

However, this will mean you have less control over your property, and it is an extra outgoing cost that you will need to accommodate in your monthly expenses.

Ultimately, the choice of how you manage your investment property is yours. If you want to learn more about how to manage an investment property, click the link to read our guide.

You may decide your investment strategy is to establish a buy-to-let portfolio and purchase multiple investment properties. This way, you can use the rental income from your property portfolio as your main source of income and treat your investments as a business.

Owning multiple investment properties means more rental income, as well as less risk as if one property fails to bring the expected returns, you can fall back onto your other properties. This method of buying investment properties allows you to achieve financial freedom sooner.

Buying more than one investment property is an expensive investment, though, and it is likely you will not have the funds required to purchase these properties right away.

Instead, this is where you can split your budget and use buy-to-let mortgages to spread out the cost of purchasing multiple properties.

As mentioned earlier, you pay off the accrued interest on buy-to-let mortgages, leaving the borrowed amount untouched during the term of the mortgage. At the end of the term, you can either remortgage the property, sell it or use the income you have made to pay it off.

However, interest rates are rising on mortgages across the UK, meaning you will have to spend more of your rental income to pay off the mortgages.

While you will be able to earn more income from buying more than one investment property, you will also have to have a larger budget or be willing to spend more over time.

If you’re interested in learning how to build a property portfolio, read our guide on the topic by clicking the link.