Property Investment UK – How to invest in Property in the UK

Property Investment UK – How to invest in Property in the UK

Real estate is a lucrative investment. It offers income in the form of rent and profit when you sell the appreciated property. As an asset, it’s an excellent security for diversifying your portfolio. In 2021, house prices increased in England to £268,000, in Scotland to £161,000, in Northern Ireland to £149,000 and in Wales to £185,000.

It has minted its share of the world’s wealthiest people. For example, Hugh Grosvenor, Sir Frederick Barclay, Richard Livingstone and many more. Experts agree that, as with any other investment, it’s best to be well informed before spending hundreds of thousands of pounds.

Are you thinking of investing in real estate?

In this post, we explain how to invest in property.

What Types of Property Investment Could I Choose From in the UK?

There are different types of property investments in the UK. For example, you can choose to buy a home or a commercial building. Alternatively, you can invest in Real Estate Investment Trusts (REITs). The following are types of property to invest in the UK.

  • Buying a new build off-plan
  • Property development
  • REITs
  • Buy to let

Buying a New Build off-Plan…

Buying off-plan means purchasing a home before the developer finishes building it. You can buy the property before construction begins or before it’s finished. Then, you can own property for a relatively small deposit and get a say in the build and design.

There is a risk for buying a new build off-plan. The developer could go bust, or the finished property might not end up how you expected. Then, when it comes to selling the property, you could run into trouble. Also, you could be stuck paying the mortgage, or the neighbourhood may not end up like you hoped it would.

The good news is buying a new build off-plan is a good deal. In addition, you can sell the property for a profit once finished.

Property Development…

Property development is risky, but the returns are spectacular. If you develop a property, you can make a quick return by cutting development costs.

Sadly, it takes time to develop the property. By the time you finish building the property, the market could have fallen. If no investor buys your property immediately, you need to manage or pay someone else to do so. This will eat into your profits.

To make profits, cut costs or even do some of the work yourself such as interior design and furnishing. Eventually, you could make a loss. If you walk the path of a property developer, get ready for the good and bad.

Real Estate Investment Trusts or REITs…

REITs are companies that invest, own, and in most cases, operate real estate. They own many types of properties:

  • Apartment buildings
  • Offices
  • Warehouses
  • Hotels
  • Shopping centres and much more

REITs provide high dividends and the potential for long term capital appreciation. As such, they are a good portfolio diversifier.

In the UK, lots of investors prefer REITs as they’re easier to invest in. This is because several investors buy property using a pooled fund. In return, investors get paid based on how the investments are performing. Other indirect property investments include:

  • Property ISAs
  • Property investment trusts
  • Property bonds and loan notes
  • Property unit trusts
  • Insurance company property funds
  • Shares in listed property companies
  • Property unit trusts
  • Offshore property companies

REITs are good due to their low entry point.

Buy To Let…

You can invest in property that you let out to someone else. Buy to let is a long term investment. While property prices may go up and down, eventually, they should increase. As such, you could make a profit when you sell the property.

Since you’re renting out the property to tenants, you get to earn income weekly or monthly. If you take advantage of low buy to let mortgage rates, your profits will increase further. Sadly, there is no guarantee that a tenant(s) will occupy your property all the time. When it’s empty, you need to make mortgage payments.

To find tenants, advertise your property, check references of potential tenants, and arrange the deposit. Although you can get an agency to manage your property, it will come at a cost. As such, your profits will reduce.

What Costs Are Involved in Buying an Investment Property?

Property investment comes with a variety of costs. They include:

  • Land registry fees
  • Estate agency fees
  • Solicitor fees
  • Insurance
  • Stamp duty
  • Mortgage fees
  • Surveys
  • Inspections

Now that you’re aware of the costs associated with property investment, plan and budget.

How to Find the Right Property

Purchasing an investment property to sell or to earn a rental income is both profitable and risky. Here are tips for finding a suitable property investment in the UK.

Do Your Research…

Buying property investment is one of the biggest decisions you’ve to make in your life. As such, it’s really worth it to put lots of effort into ensuring you find the right property. There are several property websites online where you can find possible investments. Examples include Zoopla, OnTheMarket and Rightmove.

These sites list properties sold by developers and real estate agents. They have the most comprehensive listing. As such, it’s a good place to start. Use the site’s search function to find a property. Filter results by property type, location, price, and other factors.

Since you’ve to register for an account, you can set up alerts. As soon as the property site features a listing that matches your criteria, buy it.

Register With Real Estate Agents…

The majority of people sell their homes through real estate agents. In fact, more than 90% of home sellers choose high street real estate agents when selling their homes. You’ll need to register with real estate agencies to go on viewings.

Once you register, you can start your search for properties in your desired area. Again, this won’t cost you anything. Alternatively, you can visit the real estate agent’s office and register in person. Doing so will help you create a good rapport with the estate agents.

Remember, you don’t have to stick with one agent. However, the more you register with, the higher the chances of getting the ideal property.

Property Auctions…

You can also find the right property at a property auction. However, some of the properties offered could be in poor condition. This is because it’s been difficult for sellers to find a market for the property.

Property auctions usually plan months in advance. You can find auction houses publicly releasing a catalogue to potential bidders before the auction date. Most auction houses publish their catalogues a month before the auction.

Each listed property will have a guide price. This is the price that the auction house or seller thinks it’s worth. Finally, the reserve price is the minimum price that a seller is willing to accept. Auction houses usually keep the reserve price confidential. After a successful bid, sign a contract and pay a deposit – 10% of the purchase price.

Auctions are not for the faint-hearted. You can get caught up and bid more than you intended. To avoid this, bring someone else along with you.

What’s Next

Once you find the ideal property, arrange a mortgage. On average, once you submit a mortgage application, it takes 4 to 6 weeks for your lender to approve. You’ll need a deposit of at least 5% of the property price. For a first time buyer, the average house deposit in the UK is around 15%. The bigger the deposit, the lower your mortgage interest rate. Also, your monthly repayments will be smaller.

Next, have a full structural survey carried out. For a property worth more than £100,000, you could pay as much as £800 for a property survey. If you don’t have a solicitor, you need one. The best way to find a solicitor is via word of mouth. Get recommendations from family and friends who recently bought property.

Your solicitor will look at what’s included with the sale. Now, you can exchange contracts, pay your deposit and agree on a completion date. Completing the sale involves transferring funds to the seller’s solicitors. Don’t forget to collect the keys and arrange insurance.

Final Thoughts

Most people think that you need a lot of money to start investing in real estate. Well, that’s not always the case. You don’t need a lot of money because you can start with low priced homes or distressed properties. You can also invest in REITs which pull funds from several investors.

To improve your profit margin, keep your costs down. Shop for building insurance as this will cover problems caused by tenants. Get the cheapest mortgage you can. As with any investment, your property may not produce thousands of pounds right away. Be patient and don’t pick the wrong property.