How to Buy Investment Property in the UK (10 Tips in 2021/22)

When it comes to generating passive income, few investments come close to investment property. 

And after a record-breaking year in the UK property market that saw average UK property prices soar past £250,000 for the first time ever, you may be thinking that 2022 is the perfect time to make a purchase. 

But property can be complicated, with a lot of nuances setting apart a good property investor from a great one. 

With this in mind, we’ve decided to give you10 tips for making the best property investment possible in the next 12 months. 

Keep reading to learn all about how to buy investment property in 2021 and 2022. 

What Is an Investment Property? 

So, what is an investment property? 

An investment property is real estate that has been purchased to make money from rental income and/or the future sale of the property. As such, investment property can be considered both a short term and long term investment. 

Why Is Investment Property a Good Investment in 2021?

There are four main reasons you might consider investing in investment property in 2021 and 2022. 

They are: 

1. UK house prices have increased at their highest level since 2004, with buyer demand twice as high as pre-pandemic levels according to Rightmove. This has led to average property prices exceeding £250k for the first time ever, according to Nationwide. 
2. Rental income is also at a record high, with UK rental property commanding average rental prices of £1,061 per month in September 2021, according to HomeLet. 
3. Rental demand is the highest it has ever been, with Hamptons estate agents finding that it took just 8.9 days to secure a tenant in Q2 2021, down from 31.9 days in 2019! 
4. Capital growth potential is huge for investment property, with industry-veterans Savills predicting property prices to rise by up to 18.8% in UK regions by 2026.  

How to Invest in Property: 10 Tips for Buying Investment Properties 

Now that you know why you might want to make a property investment, it’s time to look at making the best investment possible. 

To help achieve this, here are 10 essential tips that every beginner property investor should know when buying investment property in 2021. 

Remember, though, the following tips are not financial advice and you should seek expert advice before making a property investment. 

1. Do You Want to Be a Landlord? 

While generating rental income and long-term capital growth is exciting for prospective landlords, many investors forget about the responsibilities they are taking on by becoming a rental property owner. 

As a landlord you must: 

• Keep your rental property safe from hazards. 
• Ensure all gas and electrical equipment has been safely installed. 
• Provide an Energy Performance Certificate. 
• Protect your tenant’s deposit. 
• Check your tenant has the right to rent in England. 
• Give your tenants a ‘how to rent’ checklist when they begin renting. 

There are even different rules if you buy investment property in other countries like Scotland and Northern Ireland. 

If you don’t want to take on the burden of landlord life, there are ways to have a completely hands-off investment in UK property. 

To do this, you’ll need to hire a property management company that will fulfil all landlord duties, including finding tenants and collecting rent. However, keep in mind that you’ll usually be charged around 10% of your monthly rental income for this privilege.  

2. Research the Right Location  

While findingbuy to let real estate can be simple, ensuring that it is a lucrative investment can be much harder. 

A big factor behind the success potential of an investment property is its location, with different cities offering varying rental market strengths. 

For this reason, it’s vital you research UK cities and areas to ensure you’ll have access to your targeted tenant group and can generate enough property interest for years to come. 

To do this, you’ll need to keep some criteria in mind by evaluating UK locations. You should think about an area’s: 

• Affordability 
• Average rents 
• Rental yields (percentage figure showing the return on investment earned every year through rental income) 
• Future development and regeneration potential 
• Long term growth and capital appreciation potential 
• Transport links 
• Employment opportunities 
• Local amenities 

By finding an area that meets all these criteria, you’ll set yourself up for the best chance of success with your buy to let property. 

For finding the right property, the current best places to invest in UK property according to our criteria are: 

1. Liverpool 
2. Manchester 
3. Leeds  
4. Birmingham 
5. Luton

You can learn more about North-West locations on this list by reading our dedicated investment guides to Liverpool property investment and Manchester property investment. 

3. Decide Between Buying or Finance 

The next crucial step for buying rental property is to decide whether you want to buy your investment property outright, or use financing options. 

With property prices currently sitting at an average of £269,945, according to the latest official Land Registry figures, the average buyer may struggle to cover the entry cost of owning a rental property. 

For this reason, you’ll likely opt for financing options by securing an investment property mortgage, otherwise known as a buy to let mortgage. However, there are some key differences you need to be aware of when using an investment property mortgage. 

1. Buy to let mortgages require a higher deposit than traditional residential real estate mortgages, usually around 25% of the property price. 
2. BTL mortgages are interest-only, which means mortgage payments only cover the interest owed each month. Upon the end of your mortgage term, you’ll need to repay the total debt in full – usually achieved by selling the property. 
3. Owner-occupied properties purchased with a BTL mortgage aren’t allowed. This means you cannot live in your investment property if you buy it with a buy to let mortgage. You’ll need to switch to a normal mortgage if you plan on moving in yourself after a while. 
4. Mortgage lenders will require your rental income to be around 20-30% higher than your monthly mortgage payments. 

Speak to a mortgage advisor to learn more about BTL mortgages and their suitability for your financial needs. 

4. Get Landlord Insurance

When buying an investment property to rent, you’ll likely want to protect your home from damage during your ownership.  

To do this, you will need to secure cover with landlord insurance.  

Landlord insurance is a cover that protects landlords from damages suffered in their rental property. This cover can protect landlords from a variety of issues including structural damage, loss of rent, and legal issues. 

There are several different types of landlord insurance, including buildings insurance, contents insurance, liability insurance, legal cover, loss of rental income, and home emergencies. 

While landlord insurance isn’t legally required, it’s a smart idea to get some protection, with some mortgage lenders requiring buildings insurance before they will provide a loan. 

5. Organise a Full Structural Survey 

New build properties have slowly built up the reputation of lacking quality, with corner-cutting developers releasing low-quality developments. 

While one way to get around this is to conduct due diligence on a property developer before buying the property, another way to ensure quality is by organising a full structural survey.

Although this may set you back around £800 on average when buying your buy to let property, it could save you a fortune in the long run. 

By getting a full structural survey, you can flag up any issues you have with the property before buying and can either choose not to make your purchase, or can bring the issues to the developer who will typically fix them free of charge.  

6.Calculate Rental Yield 

Perhaps the most important tool used to evaluate the income potential of buy to let properties, rental yields are a necessity all investors should consider before buying property. 

A rental yield is a percentage figure that shows the annual return on investment earned through rent. 

You can calculate rental yield by working out your annual rental income minus any expenses, dividing it by the price of the buy to let property, and then multiplying by 100 for a percentage figure. This will show you your net returns every year. 

Generally, NET yields between 5-6% are considered good, with gross yields (returns without factoring in expenses) of 7-8% are usually ideal. 

Whenever buying property from a developer or investment company, you will often find that the calculation has been done for you so you know the rental yield before purchasing.  

For instance, here at ELEMENT, our revolutionary eco-property ELEMENT – The Quarter is available with 8% NET rental yields. 

7. Buy City Centre Apartments First

For beginner investors getting onto the UK market, chances are you’ll have a long term vision of building up a varied property portfolio to earn you income for years to come. 

And while this is an excellent ambition to have, starting small on the lower-cost end of the spectrum is a safer way to start investing as a beginner. Walk before you run as the saying goes. 

With this in mind, pinpointing a specific type of investment property that is available at a lower price, and generates high interest from tenants is a perfect strategy to have.  

For this reason, those targeting the residential market should focus on city centre investment apartments, which are often available below the £100k mark depending on what city you’re investing in.  

They also attract a tonne of tenant interest from young professionals, which can help you secure long term tenants for years to come. 

8. Make Sure You Have Enough Money for Operating Expenses

Buying an investment property to rent can, unfortunately, get pricey, and you’ll need to be prepared for any costs that you may encounter along the way. 

Aside from the entry costs of a property investment, which can include legal fees, buy to let mortgage deposit, stamp duty fees, and estate agent fees, you’ll also need to consider the cash needed for the operating expenses of real estate.  

Examples of ongoing costs can include: 

• Mortgage interest payments  
• Property management fees 
• Maintenance costs 
• Ground rent 
• Landlord insurance 
• Property taxes like income tax. 

You should also consider keeping a rainy day fund of about £2,000 to cover any unexpected costs that can arise along the way. 

We estimate that the transaction costs to purchase a property in the UK is around £30k upfront to afford a £100k property. 

Then, your rental income should ideally cover the costs of all operating fees while still giving you enough income to make a profit.  

9. Invest in Off Plan to Reduce Costs 

As mentioned in the last point, making a financial investment in a house can get pricey, but thankfully there are ways to reduce the cost of investing in real estate.

Perhaps the best way to do this is by investing in off-plan property. 

Off-plan property is real estate that is available to be bought while still under development. While this sounds risky, and you should research the credentials of the chosen developer, the main benefit is price. 

As an incentive to invest, developers will usually offer a below market value price, meaning you can save thousands on a property purchase. 

These savings can get incredibly big, with some properties seeing prices available at 55% below market price.

While the downside is you will have to wait for your property to complete before earning, if you have the patience, you can save tens of thousands on real estate.  

10. Use a Property Investment Company 

The final tip for how to buy investment rental property in 2021 and 2022 is to use the services of a property investment company.

This is especially true if you’re a beginner, as investment companies can guide you through the entire purchase process of a property.  

Better yet, by using an investment company, you can get tailored and bespoke advice for your budget, and will be able to speak to a property consultant who can find a property that suits your needs. 

Another benefit is affordability. Not only will investment companies offer assured rental yields for a set number of years, but they can also offer payment plans to split up the cost of an investment without needing the total cash required upfront.  

Investment Property FAQs  

What Is the Minimum Deposit for an Investment Property? 

The minimum deposit for an investment property mortgage is 20%, but you can pay anywhere between 20-40%, with 25% usually the most common. 

What Qualifies as an Investment Property? 

An investment property is real estate that you have purchased to earn income. This can mean buying commercial premises, retail space, a student HMO, purpose-built student accommodation, a holiday home, or a typical residential property. 

What Is the 1% Rule for Investment Property? 

The 1% rule for investment property is a way to measure gross income generated from a property compared to its purchase price. This means your monthly rent should be 1% of the purchase price of a property. If your property is worth £100,000, for example, you should aim to earn a gross income of £1,000 per month. 

Can You Buy an Investment Property to Live In? 

No, you cannot buy an investment property to live in if you use a buy to let mortgage. If you choose to live in the property, you will be in breach of your mortgage terms, and could even face jail time if found to be guilty of fraud. To make investment property owner-occupied, you’ll need to switch your mortgage to a residential mortgage. 

What Is the Fair Value Model? 

The International Accounting Standards defines fair value as the price at which property can be exchanged between knowledgeable parties without deducting transaction costs. As such, under the fair value model, investment property is remeasured at the end of each reporting period, with changes in fair value recognised as profit or loss.  

Investment Property for Sale With ELEMENT 

We hope you’ve enjoyed our guide to investment property. 

If you’re thinking of making a rental property purchase, then ELEMENT is perfect for you. 

We have some of the best rental properties the UK has to offer. 

ELEMENT – The Quarter: Investment Property for Sale in Liverpool 

View Property  

At a glance: 

• Liverpool’s first-ever eco-development, priced from only £74,950 with huge 8% NET returns available. 
• Features a cinema room, onsite gym, onsite launderette, and a rooftop terrace gifting striking views of the Liverpool skyline. 
• Ideally located just 300m away from the £1bn Royal Hospital. 
• For every unit sold in ELEMENT – The Quarter, 100 trees are planted in the Amazon Rainforest. 

Our flagship development is the all-new ELEMENT – The Quarter. 

Available for both student and residential tenants, ELEMENT – The Quarter is Liverpool’s first-ever eco property and is filled with pioneering energy-saving tech. 

It also comes equipped with everything the modern tenant could want, including an onsite gym, cinema room, and striking views of Liverpool’s skyline from a stunning rooftop terrace. 

Designed to help save tenants thousands on energy bills, you can buy an apartment in ELEMENT – The Quarter for just £74,950. 

Help save the planet today with 100 trees planted for every unit sold in this striking Liverpool city centre investment property for sale.  

Investment Property for Sale With ELEMENT 

We hope you’ve enjoyed our guide to investment property. 

If you’re thinking of making a rental property purchase, then ELEMENT is the perfect company for you. 

With our registered office in the North West, we are well-positioned to deliver some of the best rental properties the UK has to offer. 

ELEMENT – The Quarter: Investment Property for Sale in Liverpool 

View Property 

At a glance: 

• Liverpool’s first ever eco-development priced from only £74,950 with huge 8% NET returns available. 
• Features a cinema room, onsite gym, onsite launderette, and a rooftop terrace gifting striking views of the Liverpool skyline. 
• Ideally located just 300m away from the £1bn Royal Hospital. 
• For every unit sold in ELEMENT – The Quarter, 100 trees are planted in the Amazon Rainforest. 

Our flag ship development is the all-new ELEMENT – The Quarter. 

Available for both student and residential tenants, ELEMENT – The Quarter is Liverpool’s first-ever eco property and is filled with pioneering energy-saving tech. 

It also comes equipped with everything the modern tenant could want, including an onsite gym, cinema room, and striking views of Liverpool’s skyline from a stunning rooftop terrace. 

Designed to help save tenants thousands on energy bills, you can buy an apartment in The Quarter for just £74,950. 

Help save the planet today with 100 trees planted for every unit sold in this striking Liverpool city centre investment property for sale.