With UK house prices forecast to climb by 22.8% over the next five years, while the rental market goes from strength to strength, now is an opportune time to invest in property.
Property investment comes with multiple benefits, from owning a solid, tangible asset to benefitting from a regular rental income alongside long-term gains.
If you’re looking to invest in property in the UK but aren’t sure where to start, here are seven steps to help you get onto the investment ladder.
1. Conduct thorough market research
It may seem obvious, but having a solid grasp of the UK property market on a local level can make a huge difference, with a focus on price trends, rental yield hotspots, future regeneration and transport improvements, and areas with strong employment opportunities.
As part of this research, you also need to be aware of all the costs involved when you invest in property, as well as your legal obligations. Taking into account the pros and cons of various property types, from houses in multiple occupation (HMOs) to traditional buy-to-lets, can also help you narrow down your search.
Keep an eye on our Property News pages for the latest updates on the UK housing market, and check out our Advice page for more detailed information. You can also speak to one of our experienced investment consultants to find out more about the market.
2. Think long-term
While some people successfully invest in property for a fast turnaround and returns, sometimes known as ‘flipping property’ where you buy cheap and sell for a profit, the majority of investors see the best returns through long-term ownership.
It’s important to consider your long-term goals. Do you want to make regular returns from rental income, or would you prefer to focus on making a profit from capital growth when you sell the property? To see your property’s value increase, you may have to hold onto it for a very long time, letting it out to ensure a continual income stream.
Many people invest in property as part of a retirement plan, with the intention of selling it as a way of boosting a pension pot. However, for others, passing it onto loved ones in the future is the end goal – in which case, it might be worth seeking specialist tax advice on the best way to do this.
3. Consider a limited company
The number of rental properties owned through limited companies has multiplied exponentially in recent years. While this indicates that more people now invest in property as a long-term business plan, it also demonstrates how investors are adapting to fiscal changes in order to maximise their returns.
The main benefits of limited companies are linked to tax. Companies can deduct mortgage interest as a business expense before tax, while individuals can’t; and if you retain any profits made through the sale of a property within the company, you may not be liable for capital gains tax.
Again, investors are advised to speak with an expert before considering setting up a limited company, to learn more about the pros and cons.
4. Invest in property off-plan
There are multiple benefits when you invest in property off-plan.
One key advantage is that the value of the property during the planning stage is likely to go up by the time it’s completed. If you buy at this point, you can benefit from this increase in value without having to wait until the end of construction.
Buying off-plan property also means you may be able to negotiate with the developer to get a better deal than buying once construction has finalised. As a result, you may secure discounts on investments or receive more attractive terms.
Finally, you may be able to secure your investment before anyone else does, giving you the pick of the best units in the development; and you may be able to personalise your property to suit your requirements.
5. Use a property manager
If you end up building up a property portfolio, or even if you only invest in one property, managing it can be more time-consuming than you think. As a result, many investors choose to work with a property manager, freeing up their time for other things.
Property managers can also make sure that all your legal obligations are met, as they keep abreast of any changing regulations or new requirements for landlords.
It is important to note that property managers may take an average of between 8-12% of your rental income. You should therefore weigh up this cost against the potential benefits.
6. Consider borrowing to maximise your portfolio
If you invest in property with cash, you will save yourself the cost of setting up a mortgage as well as the ongoing interest payments, which can benefit your bottom line.
However, tying up all your cash in one property can increase your risk, which is why many people choose to invest in property using a mortgage. This could allow you to purchase multiple properties, spreading your risk and potentially boosting your returns.
7. Have an exit strategy
Having a clear exit strategy when you invest in property can help you achieve your long-term goals.
As mentioned above, one popular strategy is to sell the property upon retirement, releasing cash to top up your pension pot. Other investors may have a value-based goal, where they will sell the property once it has achieved a desired value.
A yield-based exit strategy is linked to rental returns – you may plan to sell once the property is no longer achieving yields sufficient to cover your costs, or rental yields are falling short of your other properties.
