Investments are inherently risky – real estate in particular. The subprime mortgage crisis was barely a decade ago and it played a large role in a devastating recession. As with any potential investment, doing thorough research and examining all your options is crucial. One of the causes of the subprime mortgage crisis was predatory loan companies taking advantage of vulnerable homebuyers. However, if you are considering how to get into property investment in the UK, you need to consider the ways to invest and choose the one based on your unique conditions.
It is necessary to understand the risks and avoid working with lenders and companies that use questionable practices. Investing in real estate isn’t for everyone, but if you’re willing to dip your toes in the water, your first step is to weigh whether you want to invest by buying property, or without buying property.
Ways to invest in property in the UK:
- Buy REITs (Real Estate Investment Trusts)
REITs allow you to invest in real estate without the physical real estate. Often compared to mutual funds, they’re companies that own commercial real estate such as office buildings, retail spaces, apartments, and hotels. REITs tend to pay high dividends, which makes them a common investment in retirement. Investors who don’t need or want the regular income can automatically reinvest those dividends to grow their investment further.
Are REITs a good investment? They can be, but they can also be varied and complex. While some trade on an exchange like a stock, others aren’t publicly traded and so are not easily sold and could be hard to value. The type of REIT you purchase can be a big factor in the amount of risk you’re taking on, so new investors should generally stick to publicly-traded REITs, which can be purchased through brokerage firms.
In order to invest in this way, you’ll need a brokerage account. If you don’t already have one many companies require no initial investment, though the REIT itself will likely have an investment minimum.
- Use an online real estate investing platform
These platforms connect real estate developers to investors who want to finance projects, either through debt or equity. Investors hope to receive monthly or quarterly distributions in exchange for taking on a significant amount of risk and paying a fee to the platform. Like many real estate investments, these are speculative and illiquid — you can’t easily unload them the way you can trade a stock.
Another drawback to this is that you may initially need more money to make money.
- Consider flipping investment properties
Under this option, you invest in an underpriced home in need of a little revamping, renovate it as inexpensively as possible and then resell it for a profit. This strategy, commonly known as ‘house flipping’, is a little bit harder than it may seem.
David Meyer, vice president of growth and marketing at Alexy Realty Group explains that there is a bigger element of risk because so much of the math behind flipping requires a very accurate estimate of how much repairs are going to cost, which is not an easy thing to do.
His suggestion: Find an experienced partner. Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project.
The other risk of flipping is that the longer you hold the property, the less money you make because you’re paying a mortgage without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you don’t include much overhaul.
- Rent out a room
Finally, to dip the very tip of your toe into the real estate waters, you could rent part of your home via a site like Airbnb. You don’t have to take on a long-term tenant, potential renters are at least somewhat prescreened by Airbnb, and the company’s Host Guarantee provides protection against damages.
Renting out a room feels a lot more accessible than the concept of real estate investing. Basically, if you’ve got a spare room, you can rent it.
Things to look for before investing
Generally speaking, a growing population is a good indicator of a robust rental market but a specifically young, growing population is a great indicator. They are more inclined to rent as they don’t have the financial capacity yet to purchase their own homes. It is also prudent to make sure the population is largely skilled in future-oriented industries to secure your returns.
For example, 40% of Birmingham’s population is under 25 which also makes it an attractive location for start-ups, new businesses, and creatives looking to find their way in the modern economy. Digital and Tech are flourishing industries and dominated by younger professionals with good salaries and job security. Last year alone, the Tech sector grew 6 times faster than any other industry.
Birmingham’s universities produce over 25,000 graduates each year, many of which stay in the city and work in jobs created by the regeneration programmes and the Tech sector. With Birmingham’s population rising and more jobs opening up at a rate that property development can’t keep up with, it comes as no surprise that house prices in the West Midlands are expected to grow by 18.4% by 2024.
Regeneration in the investment sense is when something undergoes a radical change to meet infrastructural, societal, and other needs to spur economic growth. A city undergoing a period of regeneration is ideal for property investment. As the GDP grows and more jobs open up, the city becomes more attractive and property prices naturally rise. By investing at an early stage, you can give yourself a profitable head start.
Like all investment decisions, the best real estate investments are the ones that most serve you, the investor. Think about how much time you have, how much capital you’re willing to invest, and whether you want to be the one who deals with household issues when they inevitably come up. If you don’t have DIY skills, consider investing in real estate through a REIT or a crowdfunding platform rather than directly in a property.