Real estate has traditionally been a lucrative investment opportunity across the UK, and it continues to be so, getting even bigger with each day as the population continues to rise. As the number of potential tenants rises, so is the demand, while land – a scare asset – is restricted in supply. This demand-supply gap means just one thing – immense potential for real estate investment UK.
Real estate investors are already taking the advantage of this gap between demand and supply to book high levels of profits. Similar is the scenario with beginners in real estate investment UK as they are drawn towards this unique asset due to the high potential growth that it promises.
How real estate investors make money?
Real estate appreciation
Real estate or property value appreciation is the result of positive or upward changes in the real estate market. This may be in a number of ways such as the neighbourhood where the property is located rises in value through major developments such as the construction of new commercial centres. These new developments are large enough to drive the local real estate market upwards and tend to push prices in the surrounding area.
Another way real estate appreciates is through value-addition to a property. Real estate investors may implement new constructions or renovations at their property to enhance the value of a property.
Cash flow is the amount of money a tenant pays to the landlord in return for using the property for a specific duration of time. The investor or landlord buys and operates the property which may include storage units, car washes, apartment buildings, rental houses etc. to earn the rental income.
Real estate related profits
This income is generated by specialists in the real estate sector who make money through commissions from buying and selling a property or real estate experts who manage the rental properties on a daily basis on behalf of the investor in return for a percentage of rents generated by the property. This category of specialists may include brokers and real estate management companies.
Some real estate investors prefer to keep the money they make in rent and handle maintenance and upkeep of the property on their own, while some outsource the management of their rental property to professional real estate managers that receive part of the profits in exchange for property management services they provide to landlords or investors. On an average, hiring the services of property managers may cost around 10 per cent of the gross rent for long term renters, which can be much higher in case of short term rentals.
Service-based real estate investment income
Service-based or ancillary real estate investment income includes earnings generated by professionals that provide support services as part of the operating process of a property. Though this income generated from ancillary services may be insignificant compared with the huge profits generated in the real estate industry, they are a small industry within the larger real estate industry.
Tax benefits are one of the biggest advantages for real estate investors as they are business owners which means investors are entitled to tax deductions. The tax benefits include any upgrades to the property, having a home office, supplies needed for cleaning and maintenance etc.
This form of income is generated by lenders that provide loans to real estate developers or investors to purchase properties and then collect interest and fees in revenue. These lenders may include private equity firms and real estate investment companies.
Other factors to consider for real estate investment uk
Investing in a favourable market
Even if an investor has the required set of skills, capital and knowledge it does not guarantee success in terms of return on investment. There are a number of other variables which contribute towards the outcome of the investment. One of them is to spot the ideal location. Such a location means a market which is neither on a declining trend nor at the top of a bull market.
Responsibilities related to real estate investment
Real estate investment process does not end with the completion of the purchase process. It extends much beyond just the exchange of contracts. In fact, the real task begins after the completion of the purchase process as the investor has to ensure the success of the investment. Beginning with registering with the real estate agents in the area to screening tenants, choosing the right tenant, handling rent collections, maintenance and repairs – all include skills and experience on the part of the investor in order to turn the investment into a viable profit-making tool.
Condition of a property at the time of purchase
This is one of the most important things to consider as a property in a bad condition means a lot of potential investment at the property before it is ready for tenants to move into, which means a rise in gross investment. Therefore, it is crucial to inspect the property in person before buying. Potential investors should seek detailed information regarding the property to find out if changes or repairs are required to be made to the property before leasing or selling it out.
While some real estate investors may buy a property, renovate it and sell it, others may prefer properties that require little or no additional work before renting or selling. However, the best way forward is to buy a property which is in a good condition as there may be unexpected expenses due to the bad condition of the property and the repair and maintenance costs may rise beyond initial evaluations.
In case of a beginner, a small scale investment may be a good option as it means less risk during the initial periods of investment. This may include one property or a multi-unit property with only a few units. As an investor can always invest more in real estate later, it is better to start small in the initial stages and then escalate the investment with time and experience to buy more real estate.
Therefore, real estate investment UK need not be a big deal if the investor is clear on long term and short term goals, along with due diligence and expert assistance.
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.