Are Investment Properties Worth It in 2023?

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It’s no secret that buy-to-let property investment has been a popular choice for many years.

Offering regular rental income and sizeable capital growth, buy-to-let investments have delivered some of the best returns to investors over the last decade.

But is this still the case? Is property still a good investment in 2023? That’s what we’re here to find out.

In this blog post, you’ll learn three reasons why property investment is worth it in 2023, with a few reasons why it might not be the best choice for you.

Other topics include:

  • Why do people buy investment properties?
  • Are owning rental properties worth it?
  • Is now a good time to invest in property 2023?
  • What makes investment properties worth it?

Let’s get into it.

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Why Do People Buy Investment Properties?

Before we look at answering the question “are investment properties worth the investment?”, it’s essential to look at why people buy them in the first place.

Simply put, real estate investing is a fantastic way of generating passive income. Allowing investors to earn a cash flow of rental income every month while also enjoying a huge cash pay-out further down the line, few assets can deliver such high returns.

For instance, in Manchester, in the last 20 years, the city has seen an average property price growth of over 315%!

It’s also safe. Despite the COVID-19 pandemic and the UK economy suffering, UK property prices have been increasing at the fastest rate since 2004. Meanwhile, the stock market experienced its worst crash in 2020 since 1987.

Many real estate investors choose to shore up their investment portfolios through diversification, whereby they own multiple properties, often in different locations to make the most of differences in regional property markets.

While this all sounds good, the reality is real estate investing isn’t for everyone. Due to how long it takes to earn rental income and develop capital appreciation, property is a long-term investment.

If you’re a short-term investor and don’t want to wait for the long-term growth of property investment, buying rental property will likely not be the investment strategy for you.

Are Investment Properties Worth the Investment in 2023?

Now that we’ve established why people buy rental properties in the UK, it’s time to look at why investment properties are worth the investment in 2023 and why they may not be for you.

Yes, Real Estate Investing is Worth It

Massive Property Price Growth for Rental Property

One of the main reasons behind the appeal of real estate investment is the long-term capital growth potential.

With rental property in constant demand, property prices continue to grow, helping to deliver some of the highest returns possible in the UK.

Take the last year as an example. In 2021, the average UK property value surpassed £250,000 for the first time ever after increasing at the fastest rate since 2004.

The average UK property price is now valued at £292,000, according to the latest available Land Registry data in July 2022. This is a whopping 15.5% higher than 12 months ago, and it gets even higher depending on where you invest in real estate.

Using Liverpool as an example, one of the best UK investment hotspots in 2023, investment property prices have rocketed by 18.1% over the last year. Other areas of the North-West like Manchester have seen similar growth.

Factoring in additional growth predictions from Savills, which anticipate up to a 17.4% price growth in UK regions by 2026, it’s clear that long-term investors could be set for a fantastic cash pay-out in the coming years.

Rental Income Is Higher Than It Has Ever Been

Alongside the massive property value growth, rental income for buy-to-let property investing has also shot up.

According to HomeLet, the average UK monthly rental income reached a record high of £1,143 in August 2022 – an average annual rental income of £13,716!

This growth has stemmed from a newfound appetite to move homes, with lockdown leading to tenants re-evaluating what they want out of their rental property. 

Simply put, landlords’ profits are higher than they have ever been, thanks to the massive increases in both forms of income.

Huge Tenant Demand With Housing In Short Supply

As mentioned, COVID-19 lockdowns have led to an unprecedented change in the UK real estate market, making now one of the best times to ever invest.

More people than ever are looking to rent, with a report from estate agent Hamptons finding that it took just 8.9 days for a landlord to secure a tenant in April 2021, down from 31.9 days in April 2019!

This is caused by a massive supply and demand imbalance, with RICS reporting that the number of houses ready to let is down 49% from 2019 levels.

With these reasons in mind, if you’re asking, “is buy-to-let worth it in 2023?” then the answer will likely be yes, depending on your investment goals.

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No, Real Estate Investing Is Not Worth It

While there are several key reasons why buying buy-to-let property is worth it, there are some downsides which make many landlords think that real estate investment property is no longer the best choice in 2023.

Property Prices Can Be Expensive

The current average UK property value is currently £264,244. Naturally, this is an incredibly high number which is likely to rise, and this can put many landlords off from buying real estate.

While there are various ways to combat high house prices in the property market, including borrowing money with a buy-to-let mortgage or investing in REITs, there is no escaping the fact that you’ll need a considerable amount of cash before you can start real estate investing.

Combine this with the fact that interest rates for buy-to-let mortgages have been steadily rising for the past year, and investing in property can be more expensive for some than it has in the past.

Of course, this property cost is for the entire UK average. You can find far cheaper properties closer to £100k depending on what property type you want and which city you look for.

For our money, you can maximise your investment potential by securing a buy-to-let apartment in a city centre location like Liverpool, which will be available at far closer to £100k, while also offering strong returns upwards of 6% NET.

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Real Estate Ongoing Costs Can Be Pricey

Alongside the higher prices for purchasing buy-to-let property, there are also many monthly expenses to deal with that aren’t present in alternative strategies like stock investing.

To afford the money involved with buying an investment property in the UK housing market, you’ll likely opt for a buy-to-let mortgage.

These work differently than traditional mortgages, as you’ll need to pay a 25% deposit. They’re also interest-only, which means you will only pay the interest each month without touching the overall debt.

Lenders will have a more thorough application process than for traditional residential mortgages, and you will need to be able to prove the returns you will make from the property will be enough to pay the mortgage.

Stamp duty tax is another high entry cost, with buy to let investors paying a 3% surcharge on top of standard rates (check out our stamp duty guide to learn more).

You may also need to set aside a cash buffer, roughly around £2000 is recommended, to help deal with any unexpected costs that may occur.

All the costs you can expect to pay include:

  • Stamp Duty tax
  • Mortgage interest payments
  • Tax bill including property taxes like income tax or capital gains tax
  • Maintenance costs
  • Legal fees
  • Land Registry fees
  • Homeowners Insurance
  • Estate agent fees
  • Ground rent
  • Property management fees

You shouldn’t be put off by all these costs as you can earn some serious returns, but it’s important to note that you will need money for investment in real estate.

Overall, if you’re asking, “how much money do you need to invest in property?“, our research suggests you’ll need around £30k to cover the entry costs of buy-to-let property. 

If you don’t have this sort of cash available, you won’t be able to afford buy to let property. You could instead resort to alternatives like stock market investing or real estate investment trusts.

Mortgage Tax Relief is Lower Than It Ever Has Been

A factor that has impacted buy to let as a worthwhile investment is the tax bill.

Buy to let profits have changed due to a host of changes to tax incentives and tax relief.

One big factor is the reduction in mortgage interest relief since 2017, with basic rate taxpayers and higher rate taxpayers no longer able to reduce their tax bill and deduct mortgage expenses from rental income.

Instead, landlords now get a tax credit fixed at 20%. While this won’t impact basic rate taxpayers, it has significantly impacted higher rate taxpayers who previously saw a 40% tax relief.

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Conclusion: Are Investment Properties Worth It in 2023?

Overall, the key takeaways from this are that while the money earned and the income generated from buy-to-let is higher than ever, the increase in other costs and tax changes to mortgage tax relief has meant that overall income has been impacted.

This doesn’t mean property is no longer ideal. Instead, it means you’ll need to do more research to find the right property in the right location to generate the best returns – something we’ll address in the next section.

Despite the issues, it is still a widely held belief that real estate is a good investment, you just need to look outside the obvious areas like London to get the most profit.

Therefore, if you’re looking at buying your first property or want more properties and would like to know is it good to have an investment property, it really depends on your goals.

If you’re thinking long-term or are planning for retirement, buying an investment property to rent is still a good investment in 2023. And it can get even better if you shop around carefully for properties at a good value with strong rent returns.

Investing in Rental Property for Beginners

How to Buy a Rental Property to Maximise Your Returns

To save as much money as possible and lower the cost of property investment, a smart idea is to invest in either residential property or student accommodation off-plan with a property investment company.

This is for a few reasons.

  1. Residential property offers the highest capital growth returns. At the same time, student accommodation is far cheaper and can deliver a good rental yield in the long run.
  2. By buying new build buy to let off-plan real estate (buying property that hasn’t yet been completed), you can save a tonne of money on your purchase.
  3. Using a property investment company can help you keep the cost down with payment plans, assured rent returns, and exclusive opportunities you won’t find anywhere else.

When looking at properties, you should also focus on capital growth and rental yield to ensure the most successful investment possible. You can learn about what is a good rate of return on rental property in our guide on how to invest in rental property as a beginner.

You’ll also need to find property in the right location, with the best property hotspots currently Liverpool, Manchester, Birmingham, and Luton. 

You can get further information about investing in all these locations by checking our guide on the best places to invest in property.

Alternatively, to learn more about buying an off-plan property, be sure to check out our detailed guide. You can learn more about student property investment by also clicking the link.

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Choose RWinvest For Your Perfect Investment Property

We hope you’ve enjoyed this post answering, “is property a good investment in the UK in 2023?”

Despite impacts on mortgage payments and property taxes, new investors and experienced investors can still make an incredible investment in 2023 if done right.

To ensure that investment properties are worth it, invest with the best UK property investment has to offer with RWinvest.

We are an award-winning property investment company with over 17 years of experience in student and residential buy-to-let.

With offices across the UK, we are well-placed to find the perfect investment opportunity for you.

Our buy-to-let residential and student apartments start at just £74,950 and some properties offer huge NET returns of up to 8%.

Whether you’re thinking of investing in rental property for beginners, or are experienced, we will have the perfect property for you.

Chat with one of our property consultants today and find your dream new property now.

John Brady

John Brady

John is a property writer here at RWinvest. With a close eye on property market news and updates, John writes detailed and informative articles on a range of topics that are helpful for anybody looking to invest in UK property.

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