On the surface, making money in property can sound pretty straightforward, but, as with any investment opportunity, there are many important aspects to consider before you begin. Property investment in the UK can take many forms, the most common being directly purchasing a home or commercial property. However, if you prefer not to, or cannot yet, stump up enough cash to buy a property outright, you can invest in Real-Estate Investment Trusts (REITs).
Whatever path you choose, here are some property investment tips for beginners that will help get you started:
Choose your strategy
One of the most important property investment tips is to consider your strategy. At the heart of it, there are two main options; either purchasing a property and renting it out or buying a property and selling it on at a profit. Within these two strategies, there are deeper levels that you’ll need to decide on, which include:
HMO investments: HMO investments, also referred to as ‘house shares,’ involve each room in the house being rented out individually. This is a popular option as it allows for a high income on the rent. However, when you have more tenants, you also have to spend a little more time on property management. You should also consider that a large number of tenants is likely to result in more maintenance issues.
Single let properties: Single let properties are typically rented to working professionals or to families. You rent the house or flat to one group as opposed to individual renters. Purchasing a buy-to-let property is one of the most straightforward ways of entering the property investment market. Due to the nature of this option, you may have more downtime with your property standing empty, as opposed to HMO investments.
Property flipping: Flipping a property means buying it and then aiming to sell it for a profit within a short time frame. If you choose this option, it’s vital to consider the right location and to set a strict maintenance budget. It’s likely that you’ll refurbish the property before you sell it on, (doing so is how you will increase the value). Of course, it’s important not to overspend here, as you’ll end up with less profit. Flipping a property can earn you a great deal of money in a short space of time. However, you won’t get the ongoing passive income stream that you’ll earn on rental properties.
Landlord and tenant solicitors
When you are renting out your property to tenants, it’s wise to hire landlord and tenant solicitors. These types of solicitors commonly represent property management companies or landlords, they might, for example, handle disputes that arise between yourself and your tenants. Should you at any time wish to terminate an agreement with a tenant, a solicitor can help you to navigate the correct legal processes. As a landlord, you’ll also need to follow the guidelines associated with the Deposit Protection Scheme.
Study the property market
Before you get started, it’s important to study the property market trends. For example, the UK is currently experiencing great demand for rental properties. Due to this, investors would be well advised to consider buy-to-let investments. As the COVID crisis negatively impacts the economy, house prices are likely to fall amid a global recession. According to Deloitte Insights, ‘New investments are slowing down due to uncertainty and valuation concerns’.
Understand risk factors
Though property investment can make you a lot of money, it does come with risks, and it’s important to identify and consider the risks associated with each investment. You should always pay close attention to property market predictions when you are making your investment decisions. The Knight Frank Research Library have forecasted a ‘price growth of 2% across the UK in 2020 and 15% cumulatively between 2020 and 2024’. With these stats in mind, investors could still expect to see a return on their investment over time. Property investors may not currently be able to flip properties in a short space of time. With a recession approaching, many buyers are holding out on making purchases.
When you are preparing to rent your property, it’s also important to cover yourself in terms of risky tenants. You’ll need to get background checks, financial checks, and references. These checks will ensure that you’re renting to a trustworthy individual who can both afford the rent and take care of your investment. Remember, if you don’t have the resources to conduct these processes yourself, you can always use the services of a property management company.
The perfect location
Location is everything when it comes to property investment. If you’re flipping a property, you should choose an area where it will be easy to sell for a good profit. With a buy-to-let property, you need to choose a popular area with a steady flow of renters and desirable amenities nearby. According to Simply Business UK, ‘Liverpool’s L1 postcode is currently the best place to buy-to-let in England, Scotland and Wales. It generates an impressive yield of 10 per cent’.
Which tenants are you targeting?
Deciding which tenants you are targeting is essential for property investment. If you know who you are targeting, and understand their needs, it’s easy to ensure that your investment is a success. For example, if you are looking to appeal to families, you will want to find a family-friendly neighbourhood with good schools. On the other hand, if you are planning to rent to students, consider proximity to universities and/or local nightlife. You may perhaps choose an area that has occupied student properties closeby. You’ll also need to closely consider your target tenants when you set the rental prices. For student houses, it can be useful to take a look at the average price to rent student accommodation in that area. Student houses are usually priced cheaply, so it might take a while to start earning back a nice amount of money.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.