Buy to Let property investment is one of the most lucrative ways to make the most out of your savings, and these top ten tips for property investment are designed to prepare you for getting started on this profitable journey. There are a number of things to consider when deciding to invest in property, like where you are going to invest, what type of property you want to purchase and what are the tax implications of your investment. We cover the ten most important property investment tips and what you need to know before starting out.
1. Consider The UK Buy to Let Market
2. Find The Best Location
3. Understand Your Tenant Profile: Student Vs. Residential
4. Decide Between Off-Plan and Refurbished Properties
5. Make Sure You Get The Highest Rental Yields
6. Look For Price Growth And Establish an Exit Strategy
7. Contemplate a Management Strategy
8. Integrate Tax Into Your Budget
9. Contemplate a Buy To Let Mortgage
10. Always Conduct Thorough Due Dilligence
1. Consider the UK Buy to Let Market
The first decision you’ll have to make in becoming a property investor surrounds the angle on property you’re going to take. For example, you might be thinking about refurbishing a property you’re living in with the aim of selling it for profit. However, one of the first tips for property investment is to consider buy to let.
Buy to let property is where you purchase a property with the intention of letting it out to a tenant, and if you’re thinking about how to invest in property, don’t ignore your buy to let options.
In recent years, the buy to let market has taken a few knocks, with changing tax policies and potential price rises, however, the benefits of property investment far outweigh these. The demand for rental property in the UK is higher than ever before with a growing need for high-quality rental accommodation ensuring a steady stream of tenants. Another key consideration when it comes to property investment is the rental returns you can receive during the time of your investment. Unlike other investment strategies, buy to let property investment allows investors to receive monthly or quarterly rental returns from tenants. Capital appreciation in property investment can be equally impressive, with certain areas of the UK reporting record house price rises. The number of people in the UK living in rental accommodation is higher than ever, with major increases over the last few years. Due to lack of social housing and the difficulties faced by people wanting to buy their first home, there are a record amount of people looking for rental accommodation,
It is important to do your research and look at the UK buy to let market in detail. Resources like our property investment guides are ideal for understanding what makes a good property investment and how to find the best investment for you. Being well informed is one of the most important aspects of property investment so you can make the best and most profitable choices as you begin your journey into property investment.
2. Find the best location
You have chosen buy to let, but you’re still unsure on how to get into property investment. A good place to start when investing in property is to research your location. A smart investment in property only selects the best performing UK regions for buy to let developments, which tend to be in urban areas.
The power of cities is the key to finding the best property for investment. Relentless regeneration is taking place throughout many central zones and especially in the Northern Powerhouse. Stealing the top spot from southern destinations that proved popular with past investment property, UK northern hotspots are now the place to invest.
Around £3.4 billion in growth deals has been dedicated to the Northern Powerhouse, highlighting the vast amount of money being ploughed into sectors of interest such as skills, innovation, transport and culture. In the wake of this renaissance, tenants are flooding to these new and modern cities which are helping to rebalance the UK economy.
When it comes to Northern Powerhouse investment property, Liverpool is an option worth thinking about. The former industrial core of the city has been transformed into a multi-use economy that presents a diverse range of property investments. Competitive property prices offer lower-cost buy to let units which assure better yields than London. If you’re thinking about going North when investing in property, Liverpool is home to six postcodes in Totally Money’s Top 25 Buy to Let Property Hotspots and dominates the first three places.
If you fancy taking another avenue into investment property, Manchester is the UK’s second city and is the North’s answer to London. This leading property market is seeing more new builds than most other cities and hits the jackpot for superb tenant demand. Rated number one for residential price growth by property specialists, invest in property Manchester to get a superior level of capital appreciation.
3. Understand your Tenant Profile: Student Vs. Residential
Another significant factor integral to answering the question of how to invest in property is identifying your target tenant. It is difficult to separate location and its occupants, as the two come very much hand in hand.
If you prefer to invest in property in a specific sector such as student property you should keep this in mind when picking out a location. You will want your property to be close to a buzzing university campus and have great transport links. Alternatively, if your property interests favour residential developments, invest in properties close to business districts with exceptional leisure facilities nearby.
By deciding who your ideal tenant is and what they are looking for, you can purchase a property that has a great appeal for them. For example, if you want to appeal to students then a property in a lively area might work well, but the same location might not be ideal for older tenants.
Student property has been growing in popularity over recent years, with a huge overseas demand for UK student property investments. The UK’s higher education institutions are world class, and there are not enough student bed spaces available at the current time. Students are paying more than ever before for their university accommodation, and rental yields are rising too. With low entry costs and an increasing standard of student accommodation, student property investment can be a lucrative strategy.
4. Decide between Off-Plan and Refurbished Properties
Now that you know how to buy your first investment property in relation to its location and tenure, it’s time to talk about off-plan versus refurbished properties. If you aren’t already aware, off-plan investments entail putting money into developments that haven’t yet been constructed, whilst refurbished properties are for investors looking to invest in revamped existing ones.
Many reputable investment property ‘how to’ guides stress the benefits of both types of property. Those that are off-plan are typically more affordable with brand new units in a recently built building. It is important to look for features in your property that tenants will be looking for, such as high-end appliances and a well-designed layout. Many off-plan properties also allow potential property investors to pay a deposit and then the full sum on completion, spacing out their investment costs over a longer time period. Though rental yields won’t be available until the property has been completed, it can allow investors to purchase a high-value property in a great location, for far less than the completed market value. Refurbished properties can offer a more unique investment, with design features that appeal to tenants, while off plan properties can offer a more modern rental property with newer features.
5. Make Sure You Get the Highest Rental Yields
When it comes to investing in property, UK locations offer the most competitive rental returns. Rental yields are assured by developers over a period of time, and they base the percentage returns upon the development’s potential for rental income. To go back to investment property basics, investors should look for properties with high rental yields as they reflect a favourable location with strong tenant demand.
High rental yields are one of the first things that you should look for in a future property investment, as they ensure that your property can pay for itself and cover any extra costs like maintenance fees and ground rent. Buy to let property investment allows you to receive a steady income that can go towards paying for the investment or saving towards future property purchases. Rental yields are often linked to a property’s location or what type of property it is, so it is important you work out rental yields before investing. Rental yields are simple to work out and are a worthwhile endeavour if you are comparing a number of different properties, showing how quickly the investment can pay for itself.
6. Look for Price Growth and Establish an Exit Strategy
Similarly to rental returns, when trying to answer how to invest in property, UK price growth cannot be ignored. It’s something all investors should look for in their chosen area of investment if they want to plan out a clear exit strategy for the future.
Capital appreciation refers to the increase in value on a property, and UK property investments are a 2018 favourite for experiencing such growth. Cities in particular that are receiving heaps of regeneration and attract more temporary and permanent residents enable the bumping up of property prices.
Certain areas of the UK have been experiencing major house price growth and investors are benefitting from these across the country. It is a good idea to look at what areas are performing the best in the UK house price index and choose a property that has the potential to rise in value. House price growth is one of the main reasons why so many people choose to invest in property, and there are serious opportunities to make significant amounts of money out of property price rises.
Like any other form of investment, it is important to think about whether you want to keep the investment for a long time or a set period, with an exit strategy already decided. Establishing an exit strategy is important, as with any investment, and selling at the best time possible is a good way to ensure optimum returns and capital appreciation. By paying attention to the property market and understanding when a property has reached its maximum value, you can receive significant returns when exiting a property investment.
7. Contemplate a Management Strategy
Letting agencies are also employed to get tenants into the property so that you don’t have to be concerned about finding a resident or experiencing void periods. This hassle-free approach is popular with investors who want to take a step back from the functional duties and demands of buy to let property. You will have to pay for an additional management service, but wouldn’t you rather spend more time expanding your portfolio than performing the day-to-day duties involved in running a property? This is the beauty of modern property investing.
Many property investors benefit a great deal by creating a solid management strategy, and when a rental property isn’t managed effectively there can be a slew of issues. An established property management company will be used to managing the practical aspects of property investment, like moving in dates, exchanging keys and dealing with any maintenance issues. They can also help you with the legal side of property investment, like drawing up lease agreements and charging any fines. This is perfect for investors who are far away from their rental property or for investors with a large portfolio. Even if you choose to manage the property yourself, it is a good idea to have a solid property management strategy so that you don’t miss anything. It is also important to check the track record of your chosen property management firm to make sure they have a good reputation and can be trusted.
8. Integrate Tax into Your Budget
Tax is simply part of how property investment works, and so many property investors get carried away in budgeting for their next investment without factoring in tax. There are several taxes which investors are liable to pay with property investment in UK locations.
The first is stamp duty; a tax paid on most buy to let investments. Student properties are exempt but the tax is owed on residential properties with a purchase price of £40,000 and over. Once you hit the books on property investment stamp duty tax, you’ll also realise there is a tax on income and capital gains.
Income tax is a tax on the rental income earned from property, and capital gains is a tax payable on the profit earned upon the sale of property. There are different rates applied to each tax and it’s important to look into which banding you’ll fall into as an investor.
Some tax relief may be available to you, but be aware that the rules are changing. From April 2020, a new policy will have been completely rolled out across the UK with a basic rate of 20%. It is also worth considering properties where stamp duty doesn’t apply, like student property investment which has become an increasingly popular choice. Tax policies are subject to change and various governments have had different approaches to buy to let property investment. Investing in UK property is relatively straightforward compared to other countries, like New Zealand which won’t allow any foreign investors to purchase property there. Though taxes may cut into profit, if you purchase the right investment, the effects should be minimal.
9. Contemplate a Buy to Let Mortgage
Investing in property UK is tricky enough without having to think about a buy to let mortgage, but it could be one of the best tips for buying an investment property.
If you want to know how to get an investment property when you haven’t got the entire immediate funds, you can opt for a buy to let mortgage to streamline the process. Similar to a regular mortgage, you can take out a loan on a buy to let property which will be calculated on its rental income
If the property you decide to invest in adds up, then it should be easy enough to get a buy to let mortgage. However, certain properties are not suitable for a buy to let mortgage, like student property investments. These must be paid in cash, so it is important to bear this in mind when looking for your property. It is also wise to look around for the very best buy to let mortgage you can find, shopping around different banks and financial providers to make sure you get the best deal. Different providers offer different interest rates when it comes to buy to let mortgages, which also depends on how much deposit you have and how long you want the mortgage for. It is important that you are aware of the process and have everything you need to complete the mortgage application.
10. Always Conduct Thorough Due Diligence
Before investing in property, UK investors should undertake exhaustive due diligence without fail. This is perhaps the most important out of all investment property tips!
When wondering how to start investing in property, the first part of your property investment plan should be to find an established investment company with an all-inclusive network. All developers, management companies, letting agents and many other participants in the property process should be examined before you jump in to buy to let waters.
However, don’t be afraid to make a splash. When the correct appraisal is conducted, there’s no reason not to invest in the UK property market, and you can enjoy every step of your property investment journey with the knowledge that you’re working with experienced and trusted partners only. Take a look at the reviews and feedback from other clients who have purchased properties with the company you want and don’t be afraid to ask questions.
It is also essential you do your research and make sure you are able to responsibly invest in property and keep up any payments. Reliable property investment firms will always carry out due diligence to make sure that you can meet the financial commitments of a property investment, but it is wise to do this yourself too. It is also vital to run the numbers multiple times so you are sure your investment will pay off in the future. Look at what houses nearby have sold for, what the track record of the developer is like, and what type of tenants are looking for property in that area. All of this information and more is available to you, it’s just necessary to do the extra research as you are investing a considerable sum.
Once you have run through all of these top tips, you should be more prepared to invest in property than ever before. IT may seem like there is a lot to take in, but property investment can be simple and secure. The appeal of property investment has continued for decades and the current UK property market shows more need for buy to let investors than ever. Property can be one of the most lucrative investment strategies out there and it is a great way to make the most out of your money and prepare for the future.