Investment appears to be all the rage at the moment
From REITs to the stock market, many people are taking their chances and putting their money on the line, with hopes of maximising their income, securing a retirement fund or even just the means to create a new start-up business.
Now, this probably all sounds amazing in theory – but what kind of investment is the best to look at?
One of the most popular and oldest means of investment is property.
It may seem like an ‘old-fashioned’ option – especially compared to things like cryptocurrency – but, as long as you know what you’re doing, the property can be a very lucrative investment.
So, whether you’re a newbie or a seasoned investor in another field, here are some beginner property investing tips for UK investors to help you get started!
Finding the Right Strategy – Buy-to-Let vs Buy-to-Sell
One of the most important things to wrap your head around is the difference between the two major strategies – buy-to-let and buy-to-sell.
Buy-to-let properties are those bought with the intention of renting out to tenants, providing a monthly rental income and steady returns over a long period. This is a great way to make large amounts of money over time, especially in a thriving market.
Luckily, that appears to be just the case, with house prices in the UK experiencing a record-breaking rise to £254,822 on average in December last year. This trend is seemingly only going to continue for the foreseeable future, with experts predicting that prices could rise as high as 18.8% in the Northwest and Yorkshire by 2026 – with a 4.5% rise in 2022 alone.
Buy-to-let also has the added bonus of allowing you to make two types of rental return through rental income and capital growth – making it one of the best property investment options for profitability.
On the other hand, buy-to-sell is when an investor purchases a property to sell for an increased price (just like with crypto – people buy coins, check the Ethereum price, Bitcoin price etc. and sell them when it’s higher).
Typically, this can provide a substantial one-off cash payment, so long as an investor makes the right improvements to increase the property’s value and whether they can secure a buyer once ready to sell. This is a good strategy for those who want to see a total return on investment over a short-term period, but unlike buy-to-let, it means investors won’t receive rental returns on top of capital growth.
Know What Makes a Good Investment
For things to run as smoothly as possible, you need to truly understand what makes a good property investment opportunity.
One of the most important terms to wrap your head around is rental yield. This is basically the return a property investor is likely to achieve on a property through rent – a high rental yield means that an investor can expect to make more money from their investment.
A solid rental yield is usually anything above 5-6%, with gains of 8% or higher considered highly lucrative.
Over the years, property prices typically grow in value, and, in some instances, this growth can be higher than usual.
This can be a result of a range of factors.
The most common reasons for this capital growth is usually regeneration and market demand.
For a property investment venture to work, high rates of rental demand are needed. After all, having a continuous stream of reliable tenants is necessary to get income on a rental home.
Some areas may experience more rental demand than others, particularly from tenant groups like students and young professionals.
That’s why, if you’re looking to target these tenant groups, you need to know about the areas and the types of property that typically see high tenant interest.
Again though, research is your best friend- follow the latest trends, listen to the experts, and you’ll be well on your way to success!
Create a Workable Budget
It is essential to develop an extensive budget plan before even looking at investing in a property.
After all, you can’t know what to get if you don’t have a price sorted.
Having a budget in place beforehand means you can find the best possible property for the best possible price.
You don’t want to pay above your means for a property that might have the same potential as a property with a lower price.
And, most importantly…
Understand the Taxes Involved
It’s clear then that, as a property investor, you must factor in all the costs of owning and maintaining a rental property.
At the top of your list: ensuring that you familiarise yourself with the many taxes involved when investing in the UK property market.
This includes things like:
- Income tax
- Inheritance Tax
- Stamp Duty Land Tax
- Capital Gains Tax
How to Pay? Consider Mortgages
Now you know what to pay, it’s time to move on to how.
For many, having the cash to buy out a property is not something they exactly have in their back pocket.
If you don’t have the money to spare, the best route to take in this case is using a buy-to-let mortgage.
Like a regular mortgage, you can take out a loan on a buy-to-let property.
You pay a deposit and then pay it in chunks through monthly repayments.
Different providers will offer varying interest rates, but it also depends on how long you want the mortgage for.
If you’re using a buy to let mortgage to buy an investment property, the minimum deposit you need to put down is usually 25% of the property’s value.
The more you have for a deposit, the lower your repayments will be and the better your chances of securing a mortgage.
Now, this is just the tip of the iceberg when it comes to property investment.
If you take anything away from this article, remember this: Research is key.
Keep up to date with the latest trends, be smart with your money, and thoroughly investigate the ins and outs of property. If you play cards right, you may just end up with a winning investment!