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How to invest in property

Alicia Babaee, Consumer Finance Specialist
Written by Alicia Babaee, Consumer Finance Specialist

7 September 2020

If you have grand designs on property investment, you'll need to get your finances into gear. We show you how to work out if property development is a realistic dream and how to make it happen.

Symbolic representation growing your money through property investing.

When thinking about investing in property, UK residents will first have to get their finances in order. We show you how to work out if property development is a realistic dream and how to make it happen.

Research your options for investing in property

What types of property investment, UK wide, could I choose from?

Property investment, UK wide, can be done in a variety of ways. You might decide to buy a home or commercial property directly, or you could invest in another way. Investing in property is one of the most common types of investment.

If you prefer not to stump up enough cash to buy a property, you can invest in Real-Estate Investment Trusts (REITs).

The types of property investment, UK wide, that you could go for include:

  • REITs

  • Buy to let investments

  • Property development

  • Buy a new build to sell on

  • Invest in property abroad.

There’s more information on all of these options below. 

We have a lot of guides on how to invest in property, UK wide, many of which we have shared links to in this guide.

Remember that investing in property, UK wide, can be rewarding, but it can also be risky.

What are Real Estate Investment Trusts?

REITs are investment funds that solely invest in property.

When looking to invest in property, UK residents sometimes prefer this method. They’re easier to invest in and easier to get out of, because they’re done as a pooled fund. This means several investors buy property, which the fund then owns. 

You’re paid returns based on how the investments are doing, and on rental income generated by the properties within the trust.

The good thing about REITs is the low entry point.

There are other indirect property investments available. These include:

  • Property unit trusts

  • Offshore property companies

  • Property bonds and loan notes

  • Shares in listed property companies

  • Property investment trusts

  • Insurance company property funds

  • Property ISAs

Alternatively, you could consider one of the other types of property investments listed below.

Buy-to-let investments

You might decide to invest in a residential property that you'll then let out to someone else. If you’re thinking of doing this, read our guide: What Are The Pros and Cons of Investing In a Buy-to-Let Property?

Investing in property development

If you fancy yourself as a property developer, you'll need to know the risks as well as the potential rewards. Read our guide: What Are The Pros And Cons Of Property Development?

Buying a new build to sell on

Buying a new build off plan can be a risk when investing in property, UK wide. You haven’t seen the finished property so it might not end up how you expected. Or the developer could even go bust.

You could also run into problems selling the property, and you could be stuck paying the mortgage until you do. Also, the area it’s built in might not end up being the kind of neighbourhood you hoped it would.

The benefit of buying a new build off plan is that you can often get a good deal. You might be able to sell the property on at a profit. Plus, you can add value to the property by decorating or furnishing it.

Investing in property abroad

Perhaps, although you want to invest in property, UK investing doesn’t appeal to you.

You might think that property abroad could offer better returns than in the UK. Read our guide before you make any decisions: What Are The Pros & Cons of Investing in Property Abroad?

What expenses can you expect if you invest in property, UK wide?

Investing in property will come with a variety of costs. These include:

  • solicitor fees

  • estate agency fees

  • Land Registry fees

  • surveys

  • mortgage fees

  • Stamp Duty 

  • setting up insurance.

So you should be aware of these before you do any planning and budgeting.

Should you go ahead with investing in property, UK wide?

Property investment is a big decision.

It can drain money as easily as it can give you returns. Make sure you’re not over stretching yourself. You don’t want to struggle if something goes wrong with the property or its finances.

You should look at other investments, such as shares, pooled funds, and pensions, to be sure you’re making the right decision.

You also need to be in property for the long term. It’s not a quick investment. This is especially if you’re thinking of buying rental property. Don’t expect to be able to get your money out of this type of investment in a hurry.

What are the risks of investing in property?

The housing market is constantly changing. Property prices go up and down, and the demand for rentals can fluctuate.

If you’re investing in property, you have to see it as a long-term investment. That way, you can ride out any storms, and perhaps sell when the market is good again.

If you over-stretch yourself and then the market dips, you might find you struggle financially.

The best way to protect yourself is to have lots of different types of investments. And do your research before you make any decisions.

What are the alternatives to investing in property?

Along with property investment, the other most common types of investment are:

  • Bonds

  • Shares

  • Cash.

Can you afford to invest in property?

Work out your income and expenditure

To make sure you can afford the costs of investing in property, you'll need to calculate your monthly income and outgoings in an average month.

To calculate your incomings, outgoings and how much you have to spare, read out guide: How to Write a Budget.

How much capital is available to you?

As well as working out your income – if you’re thinking of investing in property, UK wide – you’ll also need to look at what money you have available to invest. This’ll include any savings accounts, ISAs, premium bonds and investments like shares, bonds and unit trusts.

As well as looking into precisely how much you have, you should also find out what interest or returns they're paying. And check if there are any restrictions on when you can withdraw funds.

If you'll be taking out a mortgage to invest in property, you'll need to decide how much you can afford to put down as a deposit. Many lenders require at least 25% of the property's value, but some accept just 15% deposit.

Here’s how to save up a mortgage deposit if you don’t have enough cash saved up.

Can you afford a mortgage?

Once you know how much you have for a deposit, you can start looking into what mortgage companies would be prepared to lend you.

You'll be able to work out the loan to value (LTV) for properties of different values. You can then use mortgage lenders' calculators to work out how much a mortgage would cost per month.

If you've already worked out your monthly budget, you'll know how much spare cash you have to put towards paying a mortgage.

How much could you make or lose?

Most lenders expect you to get between 120% and 125% per cent of the monthly mortgage payment as rent. So, if your mortgage payments were going to be £1,000 a month, you’d need to get £1,200-£1,250 a month in rent.

You need to work out whether you could realistically get that kind of income from the property. Speak to rental agents in the area to find out the going rate.

It's hard to predict if a property will make a profit in the long term. That’s because the amount you can sell it for in the future depends on many factors. These include the health of the property market and how desirable the area becomes. That’s why investing in property, UK wide, can be a risk.

You can at least work out if the property is likely to make you a profit or a loss each month. Don't forget that you'll need to take any refurbishments, repairs and agency fees into account.

Find the right property

Research potential tenants and areas

The type of tenant you're likely to find will depend on what kind of property you buy and where it's located. If you go with a residential buy-to-let, make sure you know the kind of tenant you're looking for.

If you want to rent out to students, somewhere near college or university campuses makes sense. If you want professional tenants, go for a property with good transport links.

Being near to large employers, good schools or shops and other amenities can also add value to a property.

You should also consider your long-term plans. Think about when you might want to sell the property and who might want to buy it.

Do your research

You can use property websites to find possible investments that might fit the bill. You can also use the internet to read more about each area you might buy in.

It's also worth talking to local estate agents. They'll have knowledge of the area as well as expert advice and an idea of which areas are up and coming because of local development plans.

Choose a property

When you've found several properties you're interested in, ask the estate agents to show you round them. Arrange further viewings for any you're seriously considering.

Look out for any problems and decide if they're something you're happy to fix yourself. You could use this to help push down the price, if so.

Get an offer accepted

Making sure your offer is accepted, while getting the lowest possible price can be a fine art. Read our guide: How to Haggle Down a House Price, for some tips.

Complete the sale

Arrange a mortgage

For help in picking the right buy to let mortgage, read our guide: How Do Buy to Let Mortgages Work?

Arrange surveys

You can have a variety of surveys done on your property.

A Homebuyers' Report is the least detailed, while a full structural survey is the most comprehensive. For the latter, you could be paying as much as £800 for a property worth more than £100,000.

You'll also need to choose a solicitor if you don't already have one. Word of mouth can often be the best way to find a solicitor. Get recommendations from friends, family and colleagues who’ve recently bought property.

Exchange contracts

If you're happy with the results of the survey, you can agree a final sale price through your solicitor. They’ll also look into what's included with the sale.

You can then complete and exchange contracts, pay your deposit and agree a final completion date.

Complete the sale

Completing the sale involves transferring the funds to the seller's solicitors. You’ll also need to arrange buildings insurance and collect the keys.

Make your investment profitable

Should you sell or rent out the property?

Once you’ve completed any renovation work that needs doing on your property, you’ll need to decide what to do next. Look at whether it’ll be more profitable to sell it straight away, or to rent it out.

Think about:

  • How much you’d get for the sale of your property

  • How much you’d make if you rented out the property

  • How much you’ve spent on your property

  • Your other financial commitments.

You’ll need to look at how much you’ve spent on the property so far and compare this to the amount you’d make if you sold it now.

Keep down the cost of financial products

You can improve your profit margin by keeping down the cost of any financial products associated with your investment.

It's worth shopping around for buildings insurance. You could get a landlord insurance policy too. It’ll cover problems caused by your tenants and your liabilities as a landlord, as well as your buildings and your own contents. Use our landlord insurance comparison to find the cheapest policy that covers everything you need. It's also worth making sure you always get the cheapest mortgage you can. Read our guide, how to get a remortgage, for some tips on keeping your mortgage costs as low as possible.

If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.

Compare mortgages

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