10 Ways to Start Investing in Real Estate

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 2022 and 2023.

The North West also boasts some of the best house price growth rates, with predictions of 11.7% growth in-store by 2026.

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 the 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.

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.

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.
• Airbnb properties, 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.

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 REITs, 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.