So, you want to invest in property? It’s a good option to consider. The property market is currently flourishing in the UK thanks to huge house price growth and rental values skyrocketing over the past 12 months.
If you’re looking to make money and are considering investing in property, 2021 is probably the best time ever to do it. Despite planet-shaking issues caused by Covid-19, the property market has remained healthy and strong. But where to start?
Well, property can be confusing if you let it. There are tonnes of options out there for you to invest your hard-earned money, that you may not know where to begin.
In this beginners guide, we will outline how to invest in property, investing money in property, and help answer the question “should I invest in property?”.
- Why invest in property?
- What are your goals?
- How to invest in property UK?
- How much do you need to invest in property?
- How to invest in property with little money?
Why invest in Property?
Before we figure out exactly how to invest in property, it’s essential to know why we should consider investing in property UK.
Well, unlike other forms of investment like stocks and shares, property can help you earn two types of returns.
- Rental income- You buy a property and then let it out to a tenant who will pay you a monthly agreed payment for living there.
- Capital growth- Later down the line, you can sell your property for a profit after increasing value over several years.
As you will learn a little later, not all property investment methods give you direct rent or capital growth, but you can indirectly enjoy the benefits.
Another reason to invest in property, though, is for the extraordinary growth the industry has seen.
It’s not just house prices that are seeing sizeable returns, however. Rent values in the UK outside of London increased by a whopping 6.2% in 2021 compared to early 2020.
Couple this information with the fact that UK prices are predicted to increase by 21.1% by 2025, and you have a recipe for a fantastic investment.
What Are Your Goals?
You now understand why so many people are considering property investment, but the next step in figuring out how to invest in property is to explore your goals.
Maybe you are dreaming of early retirement. Or perhaps you want an extra income stream to look after your family. Whatever your reasons, understanding these goals will have a direct impact on how you decide to invest in property UK.
Let’s say you are saving up to retire, for instance. The chances are you will want a property to continually earn you income over several decades and then sell it for a considerable profit.
If that’s the case, you will want to invest in a UK area with high capital growth potential and high rental values to maximise your earnings.
This is a crucial first step on your journey and will help inform your decision for the next step – what investment to make.
How to Invest in Property UK?
Now, let’s talk about exactly how to invest in property.
There are several excellent methods for property investment, with each offering different entry price points. In this list, we will talk about five of the most popular and explore their benefits to figure out which you prefer.
The methods we will cover are:
- Real Estate Investment Trusts
- Buy to Let
- Property Crowdfunding
- House Flipping
Real Estate Investment Trusts
Firstly, an increasingly popular example of investing strategies is to invest in REITs.
REITs or Real Estate Investment Trusts are companies that own rental properties on behalf of shareholders.
Sometimes referred to as a type of closed-ended fund, they are an increasingly popular form of real estate investment thanks to their reasonably low entry point. This means if you are considering investing money in property but have little cash, this method may interest you.
You can invest whatever value of money you want by buying shares of a publicly-traded company on the stock market and stock exchange. Although, the level of money you earn will directly correspond with how much you invest.
Real Estate Investment Trusts collect money from private investors and then pool it into one fund. This fund is then used to buy properties, with 90% of their property rental income given to shareholders.
While you may not enjoy direct rental income if you invest in REITs, the number of dividends you receive is likely to increase while the UK rental market is growing.
The main issues with this method are shared when you invest in shares in the stock market and stock exchange. When you invest in shares or stocks, prices can regularly drop from various external factors you cannot control. This is worth keeping in mind, as you may find the value of your investment dropping drastically.
Another downside is that income can be shared across potentially thousands of investors. If you are looking for sizeable monthly income for retirement and are thinking of investing money in property, this method is unlikely to be the best option.
Buy to Let
Another great way for how to invest in property is with buy to let. It is a very simple way to invest in UK property.
Buy to let is one of many types of property investment. It refers to the idea of purchasing a property to rent to a tenant. It can reference both residential and commercial property.
Here you can enjoy two types of income; rent and capital appreciation.
These income streams make it ideal for those looking for sizeable returns each month.
As it stands, the current average rent in the UK is around £984, according to the HomeLet Rental Index. This means you can earn, on average, roughly £11,808 each year on a single property. These numbers will increase or decrease depending on what area you are looking to invest in.
Thanks to the supreme market growth of house prices and rent prices, it has perhaps never been a better time to invest in buy to let.
Where to Invest?
However, there are some critical factors and definitions to get familiar with before embarking on your journey.
Firstly, to get a fantastic buy to let strategy, you need to do some solid research on investment areas. It would be pointless to invest in an area with low growth potential, as later you won’t receive a significant capital appreciation cash injection.
To evaluate each area, you should consider the following aspects.
- Rental yield – this is the total return on your investment you will get each year through rent. It is impacted by the value of the house and the value of rent. Anything between 5-6% is considered good.
- House price growth – understanding market predictions and how house prices are likely to grow is vital for your investment.
- Rental value increases – Learning about the annual rate of rent growth will inform your decision on whether investing in an area is worth it.
Considering these factors, the Liverpool property market and Manchester property market are probably the best places to look at if you are wondering how to invest in property UK. The North West cities are home to some of the highest rental yielding postcodes in the UK, and have huge capital growth predictions in the future.
According to the latest UK House Price Index data, house prices in Liverpool are valued at around £155,508, with Manchester prices about £205,067.
Not only is this incredibly affordable, compared to both the UK and London average, but when you factor in rent costs, too, you get the ultimate investment.
With the latest Zoopla rental data, Liverpool rental yield is around 6.37%, with Manchester at 6.43%.
For comparison, that’s higher than the UK (4.73%), Leeds (6.33%), London (3.93%) and Birmingham (5.63%).
Now, after Savills announced new predictions for the UK, the future is looking bright for the North West. The region has the highest predicted house price growth in the UK, with a 28.8% growth by 2025 – that’s 7.7% higher than the UK average.
If you want to invest in an area that meets all the criteria for a solid investment, then the North West should be on your list.
Off-plan refers to purchasing a property that has not yet been completed.
While it may sound odd to place your investor cash into an asset that has not yet been finished, there are some fantastic benefits to off-plan property.
The main benefit is the price. If you look carefully, you can find luxury off-plan property for as low as £50k. Even ultra-modern properties, like the revolutionary ELEMENT- The Quarter (Liverpool’s first-ever eco-development), can be purchased from £92,950
It’s unlikely you would ever find a property equal in quality for a similar price. This is why, if you are considering investing money in property, this method is likely the best for you.
Due to these low prices, the property’s value will likely increase before it has even been completed, meaning the scope for capital appreciation is even higher.
If you invest through property investment companies, you will likely get exclusive deals and discounts.
Of course, there are some risks involved. This is why due diligence is vital, and researching the companies involved is crucial to making a safe investment.
Due to the high potential for capital growth, if you want to invest in property UK, this method is likely the one for you.
Another method for those investing money in property but have little cash, property crowdfunding is an interesting alternative to other traditional methods.
Property crowdfunding is when a group of people pool their money to buy a property, with each investor owning a share of the investment. It is a good example of indirect property investment
You can property crowdfund with a group of friends or go through a company.
Property crowdfunding platforms firstly identify a property. They then wait for investors to provide money until it is funded. This platform then forms a company, with investors given shares based on the amount contributed.
This is a relatively new form of property investment. As such, there is little data to support the success of the venture.
You have no control over how the property is managed, but the benefit is having a completely hands-off investment.
Due to its low entry point, it’s worth considering if you want to invest in property with little cash. Still, it will require a great deal of due diligence and can impose a sizeable risk if you invest in a platform without a good track record.
An expensive example of types of property investment, and one that doesn’t lack in risks, house flipping is a good choice if you are a veteran of the housing market.
House flipping is when you buy an undervalued property with the purpose of re-selling it for a higher price. It can often involve property development.
The difficulty involved in this method is understanding the value of the property. Having an in-depth knowledge of the market is vital, as you will need to understand the true worth of a property and evaluate its potential.
This method is filled with risks. If unforeseen problems arise, you may see yourself spending well over budget. Likewise, if you cannot find a buyer, you could be stuck paying for maintenance costs.
If you want to invest in property UK and already have sizeable market expertise, this could be a fruitful venture. However, if you’re asking “should I invest in property” as a beginner, this method won’t be for you.
How Much Do You Need to Invest in Property?
Now that you understand how to invest in property UK, it’s time to figure out how much you need when investing money in property.
Well, for some methods like Property Crowdfunding and Real Estate Investment Trusts, you can often spend very little money, ranging from £100 onwards.
However, these methods will produce far smaller profits than for investments like buy to let or off-plan.
If you are looking to retire, it’s potentially worth investing in the latter mentioned buy to let, as you will likely earn huge earnings each month.
The answer to the question “how much do you need to invest in property?” can change depending on what area you invest in.
Cities like London can boast average house prices upwards of £780,000. In comparison, the average North West property is valued at around £184,234 in 2021.
You can get even higher savings if you invest in off-plan. For instance, ELEMENT – The Quarter in Liverpool can be bought at prices over £155,000 less than the UK average, with assured yields of 8%.
It’s important to note that you don’t have to buy these properties in one lump sum. Many investment companies can offer split payment plans, so you only need to pay a certain amount for a deposit.
Alternatively, you can get a buy to let mortgage to pay for your properties. It’s important to note that buy to let mortgages work slightly differently from traditional mortgages and can often require a higher deposit of at least 25% on average.
Moreover, you will find it hard to secure a buy to let mortgage on an off-plan property, meaning you will miss out on huge savings.
Buying the property isn’t the only payment you will need to make, though. You should also factor in solicitor fees, survey fees, insurance like home or life insurance, and potentially property management costs if you go down that route.
You can currently earn huge savings thanks to the Stamp Duty Land tax holiday, which can help you save up to £15,000. The stamp duty land tax is a tax paid on property.
But thanks to the holiday, these rates were significantly cut for investors. It should be noted that this holiday is set to end at the end of June 2021, so if you are looking for savings, it’s best to act now.
How to Invest in Property With Little Money
What if you have little money to invest? As mentioned, there are payment plans for you to afford some properties, but if you have no money to invest, this can be problematic.
The fact is it is unlikely you will earn any significant revenue if you have no money to invest in property UK.
For those this applies to, it might be best for you to save up or take out a buy to let mortgage for your investment. Although, it may sometimes be difficult to acquire a buy to let mortgage on an off-plan property. You are more like to get it on a typical residential rental property.
There are varying ways to make money go further, whether that be utilising a credit card, bank account, or savings account to help support your investment in UK property.
Saving money is likely the smart choice when you are starting with little money. There are plenty of examples of a savings account that can help you. A lifetime ISA and investment ISAs are some good examples of this, along with a pensions SIPP.
You could also look for discounts, which some investment companies offer, such as free furniture packs.
Another option is to rent out a room in your home on platforms like Airbnb. This is an increasingly popular option as you don’t have to buy a new property.
The government also has schemes to help with these methods, such as the Rent a Room scheme, which allows you to earn up to £7,500 per year tax-free.
The main problem is the Airbnb market is incredibly tourism-heavy. If you live in an unpopular destination, you may get very little business. It is also very seasonal, meaning that you may go long stretches with no tenants at all.
Overall, if you are looking at investing money in property with little capital, it might be best to save up until you can afford to make a more meaningful investment venture. This includes using a bank account, savings account, or potentially a credit card.
Start Your Investment Journey With ELEMENT
We hope you enjoyed this beginner’s guide to investing in property.
If you are asking, “should I invest in property?” then the answer is yes.
UK property is an incredibly popular investment strategy, and can help net you a huge profit when done correctly.
There are plenty of options out there, including ones we didn’t mention, such as peer to peer lending, mutual fund and more.
The reality is the bricks and mortar industry is incredibly fruitful, and it’s hard to go wrong when investing in it.
However, based on the latest data, it seems buy to let property and off-plan is the way to go if you are looking at investing in property.
If you are looking to buy off-plan and are considering investing in property, be sure to check out our latest offerings.
We are ELEMENT, one of the best UK property companies specialising in residential eco property.
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Enquire now and get access to exclusive deals. Phases one and two are already sold out, with limited units left in ELEMENT – The Quarter phase 3. Hurry while stocks last.
When you invest, you also help the planet with 100 trees planted in the Amazon rainforest for every unit sold. Find out more about how you can help ELEMENT plant 40,000 trees in our new blog.
Disclaimer: The information displayed here is just a guide, it is not financial advice. If you seek financial advice, speak to an expert before considering investing in UK residential or commercial real estate. This guide was made in March 2021. The property data shown is subject to change. When you read this blog post, data may be outdated.