What Is an Investment Property? Helpful Guide

Why Is Real Estate a Good Investment? 

As an investment strategy, real estate is one of the most fruitful. Not only is the sector experiencing some of the highest growth levels in history at the moment, but you can also earn two types of income when you invest.

In real estate, you earn money through rental income and capital gains.

1. Rental income: The money you earn monthly and yearly through rent.
2. Capital gains: The increase in the price of the property over time.

This is what makes property investment so ideal. Not only can you earn consistent income every month for decades, but you can also sell the property after an extended period for a huge pay-out.

What Is a Good Rental Yield for an Investment Property? 

So, what is a good rental yield for an investment property?

Typically, a rental yield between 5 or 6% is considered good.

Luckily, there are plenty of top UK property hotspots that deliver far higher rental yields than the UK average.

Let’s look at five of the most popular UK investment locations: Liverpool, Manchester, Birmingham, Leeds, and London.

With that in mind, there are some obvious cities with a high population of young people, but that also offer high rental yields.

Two of the most popular options are Liverpool and Manchester. The cities have a combined student population of over 170,000, with 37% of the total city population between 18-34 in Manchester, and 42.3% of the population under 30 in Liverpool.

This has dramatically impacted rental demand, with a Zoopla report finding that the current ratio between supply and demand for property in Manchester is around 1:5.

These figures are good news for investors. It means they can make a substantial investment in residential and student property while drastically reducing the chance of void periods.

It’s not just rental yield and demand you need to consider, though. It’s also important to understand positive gearing and cap rate.

What Is Negative Gearing in an Investment Property? 

Negative gearing, or capital growth property, is when your monthly expenses on a property exceed the amount of rental income you are earning from tenants.

While this sounds bad, depending on your strategy, it may be incredibly fruitful. That’s because negatively geared investments are often expected to increase in value over time. These capital gains are expected to cover any short-term losses you experience.

Typically, though, most landlords will want positive gearing properties to remain financially stable. After all, if you lose a primary job, you will feel safe knowing your property is paying for itself.

What Is a Good Cap Rate for an Investment Property? 

So, what is a good cap rate for an investment property?

Typically, anywhere between 4% to 10% is a reasonable cap rate for real estate.

It’s important to keep in mind that cap rate isn’t the make or break of an investment – it’s a useful rough indicator to see how total expenditure could affect your income. Many investors will willingly invest in a property with a lower cap rate if the property is found in an area with a high commercial rental demand. Factors like rental yield, market growth, and demand are still essential features worth considering.

Now that you know what makes a good investment, it’s time to evaluate the types of properties you could invest in.

This mortgage type is quite different from typical residential mortgages. They often command a higher deposit, typically 25%, and require you to earn over £25,000 a year.

Buy to let mortgages also usually can’t be used on off-plan properties, meaning you may be missing out on big savings if you rely on a buy to let mortgage.

Alternatively, you can invest through a property investment company.

Property investment companies are a great way to make savings on a property. They typically have excellent relationships with developers and because of this can offer massive savings on off-plan properties.

Likewise, they allow you to cherry-pick the best units in a new-build property, often located in thriving property areas.

Finally, they can even deliver assured rental returns, making the investment a lot safer than buying a property from an auction.

Whatever your decision, investing in real estate is a fantastic venture to consider and could net you a tremendous profit when done correctly.

You simply cannot find a property of this quality at this price point anywhere else.

Contact our expert team of property specialists today for a quick chat about property. We can guide you through all your options and help you make the best investment possible.

We have several limited-time deals available and a FREE furniture pack on select properties – worth over £5,000.

If you want to know how to invest in property UK, buying affordable and high-yielding properties like those at RWinvest is the way to go for a lucrative investment opportunity.

Don’t miss out and start your property investment journey today with RWinvest – the UK’s leading property investment company.