10 Ways to Start Investing in Real Estate

1. Residential Buy to Let Rental Properties in the UK 

What Is a Residential Buy to Let Rental Property? 

Want to know how to start investing in real estate? Buy to let investing may be the best way. It is perhaps the most popular form of investing in real estate in the UK. For those who are unsure how to invest in real estate, this is probably the most common strategy they’ll come across. 

Buy to let means buying a property with the intention to rent it out to tenants and generate a return on investment. With residential property, this means the freedom to rent your property to any type of tenant. 

Residential buy to let properties can be rented out to young professionals, families, retirees, students, and any other type of tenant. 

Why Is This a Good Way to Invest in Real Estate? 

Buying residential buy-to-let properties as a real estate investment is one of the best options if you want to get started in the property investment world and maximise your potential earnings. 

Renting out a residential property can be an excellent source of regular income. There are some key reasons why: 

• You can earn an attractive monthly income through rental payments. 
• You can find tenants easily and quickly, provided you invest in a high-demand area. 
• You can make capital growth returns when you sell the property if it grows in value over time. 
• You can hire a property manager to manage your investment, making it a hands-off venture. 

Are There Any Downsides? 

There are some downsides to this investment strategy, but these are easy to overcome when you know how. Possible cons to investing in residential buy to let property include: 

• Low returns if you invest in an area where rental market demand and average rental costs are low. 
• Insignificant capital growth returns if you sell your property at the wrong time or if it’s based in a low-growth area. 
• Property taxes are required, such as stamp duty tax, income tax on rental payments, and capital gains tax further down the line when you sell the property. 

So how do you avoid these risks? Well, research is key with all real estate investments, and even more so with residential buy to let. 

Certain cities and towns in the UK offer better real estate investment potential. Knowing the best places to invest for high rental yields and capital appreciation is vital. 

Currently, the North West is offering some of the best rental yields in the country. 

With yields of up to 10% in Liverpool and 7% in Manchester, both cities rank as some of the best cities to invest in real estate in 2021 and 2022. 

The North West also boasts some of the best house price growth rates, with predictions of 18.8% growth in-store by 2026. 

2. Student Buy to Let Rental Properties in the UK 

What Is a Student Buy to Let Rental Property? 

Student buy-to-let rental properties are properties that are purchased with the intention of being rented out to students attending universities in the area, in order to generate rental income. 

Student buy-to-let is a lot like residential buy to let investment. The only real difference is that student properties can only be rented to student tenants. 

Why Is This a Good Way to Invest in Real Estate? 

Real estate investors who want to take advantage of the same benefits of residential buy to let, while also having some additional benefits should consider student buy to let. 

Student properties offer one of the best real estate investing options due to the following benefits: 

• High potential returns through both rental income and capital growth. 
• High turnover of students in UK cities means lots of demand for your property. 
• Lower purchase prices than residential property due to the tendency for student flats to be studio apartments. 

Are There Any Downsides? 

Student buy-to-let has some of the same downsides that come with regular residential buy to let. 

For instance, a real estate investor may find that their student flat isn’t generating high enough returns if they invest in an area with low student demand, or they buy a property that’s undesirable to tenants. 

An additional downside of student property is that capital growth may be less significant with student flats 

This is partly down to the fact that purpose-built student accommodation may be more difficult than residential property to sell, as the majority of people who buy student properties are other investors. 

Nonetheless, the rental returns that come from student buy to let can actually be higher than with residential property investment, so there’s still potential to make attractive returns with both strategies. 

3. Off-Plan Rental Properties in the UK  

What Is an Off-Plan Rental Property? 

When buying rental properties, there are different options available. 

You can buy a property the same way you would when buying a home to live in, by browsing listings of completed houses and flats in your selected area. 

Or, you can buy an off-plan property for your real estate investment, which is a property that’s not yet complete but is available for purchase while planning and/or construction is ongoing. 

Why Is This a Good Way to Invest in Real Estate? 

Investing in real estate can naturally be an expensive venture. UK house prices are currently rising at their fastest rate in 15 years, and with the average house price sitting at a record high of £268,349 as of October 2021 according to Land Registry, many people no longer have access to the market. 

While buying houses in an auction or through an estate agent can be pricey, off-plan property may be the best answer for how to get into real estate investing if you want to keep costs low. 

Some of the main benefits include: 

• Below-market value prices mean you can buy off-plan property for a smaller amount of money than you would typically spend on a completed property. 
• Some developers offer additional discounts for those purchasing multiple properties, and deals such as assured rental yields for set periods are often available. 
• Off-plan properties can come in the form of residential or student accommodation, allowing you to benefit from the pros of both these strategies. 

Are There Any Downsides? 

The biggest risk that comes with off-plan rental property investments is the risk of purchasing a property from a developer with a lack of experience or expertise. 

Occasionally, off-plan projects may fail, which is often down to a lack of experience on the developer’s side. 

That’s why you should always consider the following due diligence questions when researching off-plan properties: 

• Is the developer behind the project experienced, and do they have a track record of completed developments? 
• Does the developer have a good reputation in terms of client reviews, press coverage, etc.? 
• Do they work with industry-reputable investment companies that sell their properties on their behalf? 

We here at RWInvest only work with the best and most reliable developers to ensure your investment is in safe hands. You can find out a bit more about who we work with here. 

4. REITs 

What Is a REIT? 

Another way of investing in real estate is by investing in Real Estate Investment Trusts. 

A Real Estate Investment Trust is a company that owns and finances rental properties on behalf of shareholders. 

They work in the same way as mutual funds, whereby private investors contribute money that is then pooled into one fund. The company then uses this fund to buy properties, with most of the income going to its investors. 

To be eligible for investing in real estate, UK REITs must follow several rules. 

They need to give out at least 90% of their property rental business income to their shareholders each year. Also, three-quarters of their profits must come from the property rental business to operate as a REIT. 

Why Is This a Good Way to Invest in Real Estate? 

There are several advantages to buying stock in a REIT. The main reasons to consider real estate investment trusts are: 

• As the company has to pay at least 90% of its income as dividends, management cannot decrease the dividend payment. 
• REITs can help diversify a real estate portfolio by buying more property than an individual would be able to buy. 

Are There Any Downsides? 

There are some downsides to investing in a REIT. 

REITs act like any other company listed on the stock market, which means you can buy and sell stocks in the REIT. 

This also has the downside of a REIT equity price continually fluctuating, making the investment less secure than traditional real estate methods. 

Secondly, profits are split amongst potentially thousands of investors, making it likely you won’t earn as much money as buy to let investment. 

Finally, high dividend percentage pay-outs can often force REITs to enter debt to expand real estate holdings, which may not be sustainable for the future. 

For investing in real estate, UK landlords would most likely get more income from buy to let investment. 

5. Buy to Sell/House Flipping  

What Is Buy to Sell Real Estate Investing?  

Another answer for how to invest in real estate is house flipping. 

Flipping houses is when an investor buys a property, usually an undervalued property, and then aims to sell it on for a profit quickly. 

There are two types of house flipping: repair and upgrade, with the second being hold and re-sell. 

Repairing and upgrading refer to the idea of an investor purchasing a property and then renovating it. This tends to be the most common method of buy-to-sell. 

The other method is holding and re-selling, which involves purchasing a property that can make a profit without any alterations or work needed and selling when the market is performing well. 

Why Is This a Good Way to Invest in Real Estate? 

Flipping properties can make for a good investment option for many reasons: 

• The returns available can be lucrative depending on the housing market at the time and whether the investor manages to add enough value to their property through renovation work. 
• This method is good for those interested in owning real estate without a huge investment budget available, as properties in need of renovation are usually cheaper.  
• Investors have a choice of different property types, including commercial real estate/buying office buildings if they don’t wish to buy a residential home. 

Are There Any Downsides? 

There are, unfortunately, some downsides to buy to sell real estate strategies. 

• Buy to sell (particularly the repair and upgrade method) is a longer-term investment as some properties can require plenty of work to sell for a considerable profit. 
• Several factors can go wrong during the buy to sell process, and you could end up spending a fortune for little gain. 
• You would need to be incredibly knowledgeable about the market and resourceful, with plenty of cash to spare, to take on this method. 

If you ask “how to invest in real estate?” or “what are the costs to invest in real estate?” and want to feel secure in your investments, this risky method may not be for you. 

6. HMO Investments

What Is an HMO Investment?

Another form of buy-to-let investing worth considering are Houses in Multiple Occupation or Houses of Multiple Occupancy (HMOs). 

An HMO is defined as a property that is rented by three or more people who are not family. They share facilities such as bathrooms or kitchens and are commonly used as a type of student accommodation. 

Why Is This a Good Way to Invest in Real Estate? 

On the surface, HMOs appear to be a great investment. Here’s why: 

• They offer rental yields which can be as much as three times higher than those from traditional buy to let. 
• There are fewer void periods as even if one resident moves out, at least some will remain and pay for a portion of their regular rental income. 

Are There Any Downsides? 

The main downsides that should be considered when thinking about investing in an HMO are: 

• Securing a mortgage can be difficult compared to a second home or regular buy to let property. 
• HMOs can be incredibly expensive to start up compared to typical buy to let properties. 
• HMOs are hit with several stringent rules and regulations. Buying furniture for the property and meeting fire and environmental health regulations can get pricey before a council will approve you. 
• You would need to find a large property in order to fit in multiple tenants, which may be tricky depending on the availability of these property types at the time. 
• If you ever considered selling your investment, the market would most likely be restricted to only other property investors and landlords. This means limited capital growth. 

Investors are advised to weigh up the pros and cons of this real estate investment type and consider alternative options if they feel there are too many downsides involved. 

7. Rent a Room in Your Home

What Is a Rent a Room Investment? 

If you want a taste of being a landlord but aren’t yet ready to get involved with investing in real estate or are asking how to get into real estate investing in a simple way, you could try renting out part of your house. 

Through sites like Airbnb, you can rent part of your home to tourists, or you can provide part of your property to a long-term tenant. Whatever option you fancy, renting out a room could be a more accessible way to get started for beginners. 

Why Is This a Good Way to Invest in Real Estate? 

Renting a room out in your home is something a lot of people consider due to the following benefits: 

• You can make rental income without buying an investment property. 
• Returns can be high depending on your property and the popularity of the area it’s based in. Renting a room out in a home in a major tourist city like London, for instance, will see high demand. 
• The government has schemes in place, such as the Rent a Room scheme, that lets you earn up to £7,500 per year tax-free from letting out furnished accommodation in your home. 

Are There Any Downsides? 

While this method is a decent way to get started in real estate investing for beginners, there are also some downsides to consider: 

• There’s less stability and consistency with tenants and shorter lease lengths compared to typical buy to let investments.  
• Holiday lets and short-term rentals may not always be in-demand. For example, with the current covid-19 pandemic, travel restrictions throughout the past few years have put a hold of travel for a lot of people. 
• Maintenance may be time-consuming and costly, as you may need to provide a deep cleaning service in between tenant stays. 

Overall, this method can be risky and may not provide a stable and sizeable enough income compared to regular buy-to-let investments. 

8. Invest in Property Abroad 

What Is Investing in Property Abroad? 

Investing in property abroad is when an investor buys property in a different country to where they live. 

Investing in property abroad is popular with people from international countries like China or the UAE who wish to buy UK investment properties. People who live in the UK also purchase investment properties in overseas countries. 

In this example, we’ll focus on the prospect of buying property abroad as a UK-based investor. 

Why Is This a Good Way to Invest in Real Estate? 

For seasoned investors, expanding your portfolio and investing in real-estate abroad may be an exciting prospect: 

• You may be attracted to the idea of an overseas property with promises of better capital growth and higher rental yields, along with the prospect of buying property cheap in more affordable areas. 
• There is also the added benefit of having a holiday home, which may be something that excites you. 

Are There Any Downsides? 

While investing in real-estate abroad can, in theory, be a good idea, there are several risks involved, including: 

• Buying property abroad can be a lot of hassle depending on the area you want to buy in, with some countries making overseas property purchased quite difficult and time-consuming. 
• You’ll need to know everything there is to know about the area you’re thinking of investing in to ensure the property market there is stable and sees a lot of rental demand. 
• While the idea of buying a property for cheap in developing areas may sound exciting, the local economy could crash, having enormous implications for your investment. 

Overall, if you have expertise and knowledge of foreign markets, it could be a good idea. 

But with the added stress of maintaining property abroad and the lack of security on your investment, it makes more sense to invest in a reliable market and choose to invest in real-estate in the UK. 

9. Property Crowdfunding 

What Is Property Crowdfunding? 

For some, buy to let investment can be out of their price range, but they still want to get involved in UK real estate. As an alternative, some investors group to fund a purchase. This is called property crowdfunding. 

Property Crowdfunding is when a group of people pool their capital to buy a single property asset. This means that each investor owns a small share of the investment. 

While crowdfunding can refer to a group of friends grouping together to buy a property, the phrase typically refers to an online platform that brings together many investors. 

The process in which crowdfunding platforms work is relatively straightforward. 

Firstly, the crowdfunding platform identifies a suitable property. Investors then say how much they want to invest until the purchase is 100% funded. You can put anything from £100 to £1,000 into the pool, depending on how much you can afford. 

The platform then forms a dedicated company to buy the property, and the investors are given shares in the newfound company proportional to the amount contributed. 

The new company then finds tenants and manages the day to day costs of the property, with rental income minus the expenses being paid to shareholders in the form of a dividend.  

Why Is This a Good Way to Invest in Real Estate?

Benefits of this method of real estate investing include: 

• The ability to invest in real estate with whatever amount of money you have available. You can spend as little as £100 on your investment. 
• It’s completely hands-off, allowing you to go about your day-to-day routine without having to worry about property maintenance and management.

Are There Any Downsides? 

Similar to REIT’s, due to the number of shareholders, your returns will likely be far lower with property crowdfunding than with owning property directly. 

Furthermore, you have no control over the property management like rent, location, or even if the property is kept or sold. 

If you have very little money, this may be a way to get into the real estate market, but it seems far more worthwhile to get involved with a more secure investment like buy to let. 

10. Invest in Property Bonds 

Property bonds are a way for developers to raise capital for projects, and they do so by receiving money from investors in the form of loans. 

The bond is often a legally binding agreement between an investor and the developer. The contract typically outlines how the investment will be used, the loan’s interest, and when the investment will be repaid. 

Why Is This a Good Way to Invest in Real Estate? 

• Property bonds can provide a hands-off way to invest in the real estate market for those who prefer stocks and shares investments over buying physical property. 
• You can make attractive passive income depending on the investment. 

Are There Any Downsides? 

• Inexperienced or untrustworthy real estate developers or companies could harm your venture. 
• Like other stocks and bonds investments, property bonds are more high-risk than other strategies. 
• You can face large interest rate charges with bonds often being locked away for a long period.