If you are asking: ‘How to start investing money in property?’ then this article will help.
Firstly, for anybody who wants to embark on a property investment journey, then you’ll need to organise your finances effectively beforehand.
This will help illustrate whether property investment will offer a realistic opportunity for you and how much you have available will determine how you go about making it happen.
How you can invest in property
The first step is to research your options to establish how you can invest in property effectively.
There are a variety of ways for investing in property in the UK, so you may decide to buy a residential property to provide a home and for the tenants to pay you rent every month.
Alternatively, you may decide that investing in commercial property is for you and there are other ways to invest in property.
Investing in Real Estate Investment Trusts
This last point is an interesting one for those who may not have enough cash to buy a property outright, or even put together a deposit for one because there is the prospect of investing in Real Estate Investment Trusts (REITS).
These investment vehicles are funds that will invest solely in property.
They may be attractive to you because they are easy to invest in and also easy to get out of because they have a pool of funds from investors to buy property.
As an investor, your returns will be based on how well the investments do and on the rental yield from the properties.
However, if you do have the cash and the determination to make a success of investing in property, then you should consider the following investment routes.
Buy to let investment
Should you decide that investing in residential property portfolio is for you, then you need to consider what the pros and cons are for investing in buy to let property, including:
- The investment will offer long-term growth and investment. While house prices fluctuate, they still remain a relatively safe investment over the long-term. This means that property market prices are likely to increase and you will make a profit on the capital growth when selling the property.
- A buy to let investment offers the opportunity to generate an income that will meet your mortgage repayments. Essentially, it is the tenants that will pay your mortgage and provide extra income for you – this is an important element when it comes to a successful buy to let investment.
- As with all investments, there are downsides, including the costs of your property being empty. This is known as a void period and you’ll need to appreciate that there is no guarantee that your property will always be occupied. When it is empty, it is you that will be meeting the mortgage payment from your own income.
- Since April 2016, buy to let investors have had to pay an additional 3% stamp duty land tax (SDLT), which makes a buy to let investment more expensive.
- In addition to finding tenants, which can be costly and time-consuming, you are also responsible for maintaining your property. This means you’ll need to answer your tenant problems quickly – whether it’s a failing washing machine or boiler and these will need to be repaired or replaced.
- The other big downside for buy to let investment is that you’ll need to find tenants to live in your property, vet them fully so you will need to check their references and secure a deposit with a third party.
Another form of property investment is for those who may have enough financial resources to become a property developer. While this route will offer potential rewards, there also big risks. These include:
- Appreciating that it takes time to develop a property and you run the risk that the market may struggle and prices may fall by the time you are ready to sell.
- If you don’t want to run a property development, then you will need to pay someone to do this for you which will take a slice of your profits.
- You will need to project manage effectively and work to strict budgets and have contingency plans for unexpected expenses.
However, the prospects of making a quick and impressive return make property development an enticing opportunity, particularly when you buy a cheap property for development.
Investing in UK property
There are other routes when it comes to investing in UK property including:
- Buying a new build for selling on: there’s a risk attached to buying a new build property off-plan, which means that it hasn’t yet been built, because the property when finished may not be what you want. There’s also a risk that the developer will go bust and you may struggle to sell the property once it’s finished.
- Investing in overseas property: depending on where you live and what you think the property the UK property prospects are, you could consider investing in property abroad.
Other expenses associated with property investment
While we’ve mentioned that you will need cash to begin investing in property, there are other costs that will also need to be considered. These include:
- Solicitor fees
- Stamp duty
- Mortgage fees
- Survey costs
- Land registry fees
- Estate agency fees
The right route to property investment success
The bottom line for anybody asking, ‘How can I find out more about starting to invest in property?’, is to be aware that this can be a very expensive undertaking and will probably cost far more than you initially budget for. Ensure you don’t overstretch yourself so you can avoid problems when things go wrong with finances or the property and understand that property investment is best for the long term, particularly for rental homes, means you should not plan on accessing profits in the short-term and you will be on the right route to property investment success.