How To Start Property Investing?

Property Investing has proven to be a steady and reliable way to build wealth. UK private landlords have been able to take advantage of a booming property market since the 1980s when Thatcher allowed people to buy property from the state.

The average house price in 2005 was £158,000 and 15 years later it is £258,000. That's an annual growth rate of roughly 3.3%. On paper, this is a fantastic return even without leverage. However, with 80% leverage, this return turns out to be 10.3% annual return on investment. Now that is impressive!

In this post, we will go through some of the ins and outs of how to start property investing.

Buy-to-let Investing

Objectives:

  • Long-term (predictable) returns
  • Healthy yield
  • Capital appreciation
  • Re-capitalise to expand the portfolio

How buy-to-let property investing works?

For many, the buy-to-let market is the easiest entry into the property investment business. The aim of this approach is to build up a portfolio gradually overtime or some who come into a small fortune can quickly deploy larger sums into the property market for a steady and healthier yield than 0.00% that you might get from your bank.

Below we share some tips for you to consider before going down the buy-to-let route.

Set some property investing objectives

It is important to outline your investment goals when property investing. This can help you to be objective when investing and have higher and clearer intent when hard times are met... And there will be hard times. Some good questions to ask yourself:

  • What are your investment goals?
  • Are you looking to build a retirement nest while working?
  • Do you want your rental income to help replace your current income so you can retire early (FIRE)?
  • Do you want to leave a business for your children?
  • What is your target investment criteria?
  • Target purchase price range
  • Target Gross Yield
  • Target ROI
  • Target capital appreciation
  • Investable areas:
  • Type of properties: Apartments, Houses, leasehold, freehold
  • Type of tenants: HMO, single person, couples, small family
  • The average time you will expect to own property

Outlining all of these criteria will help you lay down a blueprint for investing in property objectively.

Know Your Area (KYA)

Having local knowledge is always going to give somebody an edge but there is also a great deal of information you can obtain through the internet. There are some great resources out there and be sure to check out our property resources page as a start.

Knowing your investable areas will help you gain a conviction on an area being a good bet. Some key things to research are:

  • Local development projects (pro tip: don't bank too on plans of development projects)
  • Local employment statistics:
  • What is the main industry that everybody is employed by?
  • Who are the larger employers and are they growing or shrinking?
  • What is the unemployment rate?
  • % of private residents vs. public housing
  • Local birth rates
  • Local schools & universities & catchment areas
  • Average rental yields

Find a trusted local estate agent

Local estate agents are good partners to have. A good agent will have a substantial amount of local knowledge to help you navigate the property market. This is especially critical when you are investing outside of your knowledgable areas. A great estate agent will also help you source some good local property deals, saving you the trouble of always logging onto Rightmove.

Consider setting up a limited company to invest

Since the government made the announcement in 2017 to update property tax many more private landlords have started setting up limited companies to invest in property. Investing in property through an SPV ('Special Purpose Vehicle') allows for more costs to be deductible from taxable revenue. In many cases, this makes it more favourable to buy a property through a limited company.

Final words

Building a buy-to-let empire is a well-trodden path to property success. It will not get you rich overnight but if you read and understand the power of compounding, you will know those big things start small. And through compounding, something small can get bigger than you think quickly.

Property development Investing

Objectives:

  • Buy low, sell high
  • Short-term returns
  • Value creation

How does the property development business work?

Property development is a very lucrative approach to property investing but as with all things, with greater rewards come greater risks. Many people usually get into property development once they have a few war wounds from buy-to-let investing or developing their own houses.

Developing property as an investment can be challenging. It helps to know a little about building, construction or have somebody you can trust to help you in that area.

Property development has many levels to it. It can be as simple as buying a property that needs a little TLC to then put it back on the market or it could be as complex as buying land to build a property.

Below are some examples of property development

  • Simple: Paint + New kitchen & bathroom + Tidying up interior & exterior
  • Not hard: Adding an extension (e.g., rear-extension, attic, etc)
  • Complex: Converting houses into flats, buying land and building property

Of course, the complexity comes from lack of experience and size of the job. If you are somebody who has experience then you do OK doing more difficult property development projects.

Final words

Property Developers aim to add value to a property in a short amount of time. This value can come from some of the points mentioned above. Buying a property can be stressful for residential purchasers so many potential buyers are looking for convenience. Whether that be by simply decorating or adding an extra room or bathroom. People pay for convenience.

Many Property Developers would also say a large number of profits come from the purchase price. Getting a good deal by negotiating hard can pay dividends very quickly.

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