How to Invest in Rental Property as a Beginner (10 Tips for 2021)

Daniel Williams
Daniel Williams
Senior Property Writer
Updated 19 November, 2021
8 Min Read

How to Invest in Property as a Beginner How to Invest in Property as a Beginner

Interested in real estate investing but unsure how? RWinvest is here to help. 

This blog post on investing for beginners will give you 10 easy-to-follow tips for buying your first rental property. 

After reading, you’ll learn how to invest in rental property as a beginner. 

Topics include: 

  •       Should I Invest in a rental property as a beginner?
  •       What do I need to invest in rental property as a beginner?
  •       The best places to invest in property
  •       How much money do you need to start owning rental properties?
  •       How to start investing in rental properties?

And much more! 

Keep reading this property investment blog to investing in rental property for beginners UK. 

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Determine Your Goals Determine Your Goals

1)  Determine Your Goals 

Before you get started, the first essential tip for how to invest in rental property as a beginner is to determine your goals. 

By understanding what you want out of real estate investing, you can decide what strategy you want to follow and how long you plan to stay in your investment before selling. 

Ask yourself: 

  •       Are you planning for retirement?
  •       Do you just want extra cash on the side?
  •       Do you want short term returns, or are you willing to wait before seeing sizeable returns?

By answering these questions, you will inform every action involved in real estate investing and help determine what type of property investment strategy you’re looking for – something we will discuss in tip two. 

2)  Choose a Rental Property Investment Strategy

Now that you know your goals and whether you’re looking at a short-term or long-term investment, it’s time to consider what rental property investment strategy to consider. 

Wondering how to start investing in rental properties? There are different types of investment property that you should explore.

Below you can find five of the most popular investment strategies for UK property investors. 

They are: 

  •       Residential Rental Property –  The most simple form of rental income. Here, investors will buy a home to rent to a tenant.
  •       Student Accommodation – Purchasing purpose-built student accommodation to rent specifically to student tenants.
  •       Commercial Property/Business Property – Buying a property to rent to businesses or corporations.
  •       Buy to Sell/ House Flipping – Purchasing a home, increasing its value and then selling it for a profit. Usually involves making repairs and adding furnishings. 
  •       Holiday Lets/ Vacation Rentals – Investing in a vacation home and renting it out on a short-term basis to holiday goers. You can buy vacation rentals both domestically and abroad.

Each of these strategies comes with its own pros and cons and will be differently suited depending on your goals. 

You can learn all about the pros and cons of each strategy and how to start investing in rental properties by checking out our property investment strategies guide. 

If you’re interested specifically in student property, you can also read our dedicated guide.  

Familiarise Yourself With the Costs Familiarise Yourself With the Costs

3)  Familiarise Yourself With the Costs of a Rental Investment 

Another critical tip you should know if you want to learn how to invest in rental property as a beginner is to understand the costs involved. 

Aside from the upfront purchase price of investment properties – the current UK average property price is £264,244 – there are several other costs you’ll need to be prepared to pay. 

These can include property taxes or ongoing expenses/monthly expenses like: 

  •       Stamp Duty Land Tax 
  •       Legal fees
  •       Land Registry fees
  •       Extra cash to deal with any unexpected costs 
  •    Property management costs 
  •       Capital Gains tax on the sale of property
  •       Landlord insurance
  •       Buy to Let mortgage payments
  •    Down payment on a mortgage 

If you’re asking how much money do you need to start owning rental property, you’ll likely need £30k at a minimum for your initial investment. This includes a 25% mortgage deposit, stamp duty fees on a £100k property, cash buffer, and legal fees. 

While there are ways to reduce these operating expenses, like buying off-plan property or using the payment plans from a property investment company, the bottom line is real estate investing can be pricey. 

You should also be sure to pay off any outstanding debt before investing, including paying off a credit card or other fees. 

You can learn more about a breakdown of all the costs involved with UK property and the latest property taxes by reading our in-depth guide to “how much money do you need to invest in property?” 

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Understand Buy to Let Mortgages Understand Buy to Let Mortgages

4)   Understand Buy to Let Mortgages and Real Estate Financing Options 

With the average UK property value surpassing £250,000 for the first time, many real estate investors have been priced out of the real estate market outright.  

For this reason, you may need a buy to let mortgage to secure your first investment property.  

If you intend on renting out a property and earning monthly income, normal real estate mortgages won’t be appropriate. Instead, you’ll need a specialist buy to let mortgage. 

These mortgages work slightly differently from traditional mortgages. The majority are interest-only, which means you will only pay the interest each month without covering the overall debt. 

Come to the end of your mortgage term, you will need to pay off the total debt by either selling the real estate investment property or remortgaging. 

The main differences between buy to let mortgages and ordinary real estate mortgages are: 

  •       Higher down payments and fees tend to be much higher.
  •       The minimum down payment/ deposit for a buy-to-let mortgage is usually 25% of the property’s value.
  •       Mortgage loan interest rates are higher.
  •       You will need to earn £25,000 per year.

If you decide to opt for a buy to let mortgage, be sure to speak to a financial advisor to help you with your financial decisions, wealth management, and personal finance. 

You can learn all about buy to let mortgages in our complete 2021 guide. 

5)  Consider a Property Management Firm for Passive Income

One of the main questions you should ask yourself when investing in rental property for beginners is if you want to be a landlord. 

Being a landlord can be a big responsibility. Not only do you need to provide good rental property, but you also need to be aware of landlord-tenant laws and your legal obligations. 

This can be a big issue for those looking for real estate properties as most real estate investors will likely rent property alongside a full-time job, meaning they will have little time to fulfil their landlord duties.  

If this is the case, you will likely need to hire the services of a property management company when investing in the housing market. 

By doing this, the property management company will charge 10% of your rental income and will handle all landlord duties, so you can have a completely hands-off investment with passive income. 

You can learn more about property management by checking out our new guide to how to manage your investment property.

Focus on Rental Yields and Capital Appreciation Focus on Rental Yields and Capital Appreciation

6)  Focus on Rental Yields and Capital Appreciation for Property Investments 

When evaluating the investment potential of real estate, it’s essential to focus on rental yields and capital appreciation. 

Rental yields are a percentage figure that shows the return on investment you’ll earn through rent. 

It is calculated by dividing the annual rental income by the original property purchase price and multiplying it by 100.  

This is to calculate gross rental income (rental yields without factoring in expenses). Calculating NET rental yield is more difficult as you will need to know the costs.  

If you’re buying with a property investment company, many companies will tell you exactly what NET yields you will earn, whereas if you’re buying through a property portal or auction it will be a lot harder to find out. 

On the other hand, capital appreciation is the growth in a property’s price over time. You can look at predictions for future price growth in an area or look at the past house prices for a specific property to inform how future growth will occur. 

By focusing on these two factors, you can ensure you find a good rental property offering a positive cash flow.  

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7)  Research the Right Location 

In the UK, not every area is made equal for real estate investment.  

With substantial regional variations, property prices, growth, rental yields, and rental demand vary wildly per city or area. 

When investing in property, you will want to invest in an area with a strong housing market.  

You will therefore need to do plenty of research to help determine which location is the right one for you and your investment properties. 

Thankfully, we’ve done the hard work for you and have calculated the latest average house prices, rental yields, price growth potential, and rental demand for the UK’s top residential property hotspots. 

The current top 10 best places to invest in income property are: 

  •       Liverpool
  •       Manchester
  •       Birmingham
  •       Leeds
  •       Leicester
  •       Nottingham
  •       Newcastle
  •       Edinburgh
  •       Sheffield
  •       Glasgow

By choosing these cities, you can ensure a supply of long term tenants for the future and ensure you can keep collecting rent for years to come. 

Another top location worth considering is Luton, quickly becoming one of the best property hotspots in the UK. 

You can learn about buying income property in all these cities in detail with our 2021 best places to invest in the UK property guide. 

Start Small When Climbing the Property Ladder Start Small When Climbing the Property Ladder

8)  Start Small When Climbing the Property Ladder 

With dreams of financial freedom, you may feel eager to climb the property ladder and rush into buying rental property and building a successful property portfolio. 

And while real estate investment is undoubtedly a great idea in 2021, caution is key for long-term success. 

By starting off small and buying a single property in a property hotspot like Liverpool, you can familiarise yourself with the UK property market and learn what it takes to make a successful real estate venture. 

While your cash flow will be less at the start, you’ll quickly learn how to maximise cash flow safely and efficiently.  

After this, you can re-invest your earnings and add more properties to your portfolio. For instance, you could buy one rental property per year in different UK investments hotspots and safely build up your property portfolio. 

9)  Choose Off-Plan Property to Save Money 

Another great tip if you’re wondering how to start investing in rental properties is with off plan. 

Like with any investment, it’s crucial to save as much money as possible to increase the potential for huge returns and one way of doing this is by buying off-plan property. 

Off-plan property is a new build property that hasn’t yet been completed but is available for purchase. You can buy both residential buy to let and student accommodation off-plan. 

The main benefit behind buying off-plan property is the cost, with developers offering below market value prices as an incentive to invest. For instance, Merchant’s Wharf, a Manchester investment apartment, is available for 55% below market price. 

Just be sure to do your due diligence and research the developer thoroughly to ensure they are reliable and will deliver your property on time and of good quality. 

You can learn all about off-plan property in our 2021 property investor guide. 

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Invest With A Property Investment Company Invest With A Property Investment Company

10)  Invest With a Property Investment Company 

The final tip for those asking how to invest in rental property as a beginner is to do so with an investment company. 

While the answer to the questions “should I invest in a rental property as a beginner?” and “can I invest in rental property as a beginner?” is yes, the process can be tricky. 

Not only do you need to ensure your rental property is a good investment, but you’ll also need to complete a bunch of legal paperwork which can be off-putting for a beginner property investor. 

Thankfully, you can instead use the services of a property investment company like RWinvest. Not only will investment companies find you an ideal investment property for your goals and budget, but the majority of the paperwork will be handled for you. 

You can learn more about property investment companies and the benefits of investing by clicking the link and reading the free guide.  

RWinvest RWinvest

Find the Right Rental Property and Invest in Real Estate With RWinvest Today

Attention all beginner investors! Real estate investing shouldn’t have to be difficult, so invest with RWinvest today and take all the difficulty out of rental property investing. 

With over 17 years of experience in residential and student property, RWinvest is one of the biggest names in real estate investing. 

Named the North West’s Best Property Business 2020 and nominated as Business of the Year 2021, RWinvest is an acclaimed property investment company with over 75,000 investors. 

You can buy properties today for just £74,950 with massive NET rental yields available up to 8%! 

We have affordable down payment property plans so you can buy property as affordable as possible. 

Invest today and achieve financial independence by securing huge monthly cash flow and positive cash flow with exclusive investment opportunities only available with us. 

Secure your ideal rental property now by clicking the link below and have a quick chat with one of our property specialists today to help find your ideal investment home and find the latest investment opportunities. 

For further reading on property investment, take a look at our guides and blog posts answering the following questions:

Does an investment property count as a first home?

Can I invest in property with a partner?

Can I afford an investment property?

How to invest money after selling property

Daniel Williams
Daniel Williams
Senior Property Writer

Daniel Williams is a senior property writer at RWinvest. Regularly publishing in-depth articles on topics such as the best investment areas in the UK and guides on how to invest, Daniel has a keen eye for statistics and analysing property market changes.