The Ultimate Guide to Property Investment
A Comprehensive Overview of the Often Complex World of Property Investment
So you find yourself with some money to invest, but where do you start?
Perhaps you’ve spent a number of years in the working world, putting in the hours, the long nights, the weekends and have managed to save a considerable sum of money. You may have recently cashed in a substantial pension fund or inherited money from family or friends. However, no matter how you’ve found yourself with disposable income it’s crucial that you now take the necessary steps to plan for tomorrow as you seek to achieve your financial objectives.
So shouldn’t you just keep your funds in the bank where it’s “safe”? What about ISAs? Pensions? Stocks & Shares? And what even is Bitcoin?!
There are numerous ways to invest your money but we have an in-depth look here specifically at Property Investment and some of the reasons why it’s consistently outperformed alternative asset classes such as those mentioned above time after time over the years.
We assess in detail why buy to let investment remains a great way to get your money working for you, some of the key factors you should consider, some of the professional services you should engage with, and what returns are possible.
Whether you’re looking to provide a pension pot for later life, enjoy a secondary (or primary?) income, invest for the next generation, or simply finance that new car/holiday/house, property investment – when done correctly – can help you to do so.
As inflation continues to outperform current interest rates the money that you’re holding in low interest savings accounts is actually decreasing in value which is why it’s so important to take action now to ensure you take advantage of the substantial returns (both in terms of yield and capital growth) that are available in property.
This guide explores some of the finer detail and key subjects around property investment and how you can take advantage of them as you begin to put your own investment plans into practice.
1. The Key Advantages of Investing in Property
As one of the most profitable investment strategies available, what is it about property investment that has made it so attractive to so many over the years?
There’s been a lot of speculation recently – mostly by the doom and gloom merchants – about the potential effects of Brexit and what it will mean to the property market.
It’s made for some spectacular headlines, depending on what your media outlet of choice is, and has led to some investors taking a more cautious approach when it comes to their next investment.
However, most experienced investors are well aware that property investment is a medium to long-term strategy and despite the scaremongering are confidently proceeding with their plans as normal, despite any short-term impact Brexit may have.
It’s crucial to be aware of The Fundamental Advantages of Investing in Property, and the reasons why it remains such an attractive option for investors.
This includes key elements such as:
- Long Term Growth
- Rising Rent Levels
- The Power of Compound Interest
These items are just some of the elements which paint a powerful picture of just how rewarding property investment can be, and why it remains one of the most powerful vehicles for investment in the UK today.
2. Beginner’s Mistakes
When investing in property for the first time it can be easy to let your eagerness get the best of you. However, this can lead to some costly mistakes.
You’ve seen the returns that are available with smart property investment, you’ve watched others profit from afar, and you’re keen to now take those first steps that will finally get you on the property ladder.
Whilst we don’t want to temper the enthusiasm of anyone who’s looking to make that first investment it’s important to be aware of some of the beginner’s mistakes when investing in property and how best to avoid these.
Headline mistakes can include:
- Making the Wrong Investment (for a variety of reasons)
- Underestimating the Cash-flow Required
- Self-Management Rather than Professional Management
Intimate local knowledge is crucial when investing in property. Often the difference between a good and bad investment in any major city can be just a few hundred yards.
We often see investors let their hearts rule their head in such cases and it’s important to adopt a more clinical investors mindset with such decisions, rather than an emotional mindset which can lead to mistakes.
Know your numbers, have a clear idea of what you’re looking to achieve, and make your decisions on that basis alone.
3. Key Considerations
Investing in property can be a smart choice and can provide profitable returns but it’s crucial to be aware of all aspects of investing before taking those all-important next steps.
If you’re looking for a profitable but passive income stream then you should be considering property investment. However it’s vital to be aware of all elements of property investing before proceeding.
Here are 4 key considerations when investing in property:
- What Area to Invest In?
- The Tenants are you Looking to Attract?
- Your Legal Obligations as a Landlord
- Managing Privately or via a Letting Agent
Property investment is a detailed and at times complex area and it’s important to be aware of all the facts before deciding how best to proceed with your investment purchase.
The items described here form a small snapshot of the bigger picture and it’s vital that you have the necessary information on all aspects before taking your investment forward.
4. What Returns Can You Expect?
Whether you invest in property, stocks & shares, pension funds, start-ups or any other type of investment vehicle, it’s a given that you’ll want to know what returns are possible before proceeding with your investment.
Some investors will seek short term gains, while some will look for an investment which provides a return over the medium to long term and it’s important to know where you sit on this scale.
Unless you intend to carry out flips (buying a property and adding value by means of refurb before then selling on at a higher price), property investment is very much a medium to long term strategy.
The real value in property investment is in holding the asset and enjoying the long-term capital growth that can be achieved. However, that doesn’t mean that you won’t benefit from notable returns in the short term too.
We discuss the typical returns when investing in property in more detail in a this blog article.
5. Yield v Capital Growth
Many investors believe that when it comes to property they have to choose between targeting a long-term approach such as strong capital growth, and a short-term option such as high annual yield.
However, this isn’t necessarily the case, and with the right investment you can absolutely achieve both of these objectives in property.
There are of course numerous other decisions to be made when becoming a property investor for the first time but choosing between immediate yield and overall growth doesn’t have to be one of them.
💡 As a very general rule in many key UK cities growth will decrease as yield increases, and vice versa, however there’s a sweet spot to be found somewhere in the middle that allows for the best of both worlds.
Some investors will solely target annual yields in order to “beat the bank” (currently offering particularly unattractive interest rates of 1% – 2%) and some will invest with the longer term in mind and the capital growth that can be achieved through property investment.
Both of these approaches have their merits depending on what you’re looking to achieve, but why not target both?
We define Annual Yield and Capital Growth in more detail in this article and how both can be achieved when following the right strategy.
6. Should You Manage Privately?
One of the first, and indeed one of the most important decisions you’ll have to make regarding your new property investment is whether to manage the property yourself, or to employ the services of a professional letting agent.
Managing the property yourself can of course result in a small financial saving, but do you really have the time to:
- Advertise Your Property
- Arrange Pre-Let Safety Work
- Schedule Check-ins & Check-Outs
- Arrange Maintenances
- Collect Monthly Rent
Our recommendation would always to utilise the services of a trusted local agent to allow you a passive and hands on investment experience.
Take the time to research your agent online or to take a referral from someone you trust. You’ll appreciate doing so in the long run.
7. Your Investment Power Team
Before embarking on your property investment journey it’s important to build a team of trusted and knowledgeable advisers around you, who’ll guide you through each stage of the process.
With certain aspects of property investment you can of course go it alone but why do so when you could benefit from the vast experience of those who have been over the course many times before.
A handpicked team of experts can ensure you’re buying the right property in the right area, that you’re set up in the best manner in terms of tax/finances, that you’re borrowing at an effective mortgage, that your purchase is concluded securely and legally, and finally that you’re investment property will be managed efficiently during your ownership.
Even taken in isolation getting just one of these elements wrong can seriously hamper your investment so it’s clear to see the importance of getting the right advice in each individual area.
Here are 5 key individuals you should be engaging with when it comes to creating your property investment team:
- Accountant/Tax Advisor
- Mortgage Broker
- Property Investment Company
- Conveyancing Solicitor
- Letting Agent
💡 Effective and profitable property investment is best attained by collaborating with a team of skilled, knowledgeable and experienced professionals. Yes you can succeed without a team, but your journey will be notably more challenging.
8. Why Work With a Partner
There are a wide range of property investment companies throughout the UK, all operating at different ends of the market. So should you work with one at all, and if so who is the best fit for you?
Each investor has their own unique personal circumstances and objectives when it comes to property investment.
Some will choose to buy in cash whilst others may take the option of a mortgage. Some are focused on targeting a high yield and “beating the banks” whereas others may be happy to play the long game and enjoy the benefits of capital growth.
And, to bring us round to this discussion, some will rely on the services of a property investment partner whereas others prefer to go it alone. So, should you work with a property investment partner?
Here are some of the key advantages of working with a property investment company:
- Will Save You Time & Effort
- Ensure You Won’t Make Costly Mistakes
- Intimate Local Knowledge
- A Proven Track Record of Investments
- Professional Negotiation Skills
- Allows You a Hands-Off Approach
Working with a partner isn’t necessarily right for everyone. If you’re an investor with intimate knowledge of the area you’re investing in, have suitable time on your hands, and have the appetite for the various tasks involved then perhaps going solo is the way for you.
However, if you’re lacking in any of the above areas, if some (or all) of the key advantages mentioned above appeal to you, or if you prefer a hands-off approach to property investment then it may be an idea to begin researching the best investment partners in your chosen area.
Our short explainer video here gives an overview of the services we at Park Gate Investments provide to our investor clients.