Is Investing in Property with only £20,000 Realistic?

investment property

Today, we’re going to be looking at a two-part question. Is twenty thousand pounds to invest in property enough to get started? Of course. And is investing in leasehold property a good idea? Well, it certainly can be but there are a few things to check before you put in a bid.

Video Transcript

So the question is…

Hello Robert and thank you for your daily emails and tips. I’m a complete newbie to property investments, and at the moment I’m concentrating on reading and gathering as much information as I can. That’s great. The first question is: one, is it realistic to think that I can start investing in property with around 20,000 pounds of my own money?

There is a second part to that question which we’ll go to shortly…

Property Investment Tips In 2016

Rob Jones Answers Your Questions About Investing In Property

  1. Should I Use My Deposit to Buy One House or Two?
  2. Do Estate Agents Have Any Secrets?
  3. What Kind of Contracts do Property Sourcers Need to Use?
  4. Property Sourcing | What Should My Finder Fee Be?
  5. What Qualifies as a Quality Property Sourcing Deal?
  6. What Is The Best Way To Work Out Rental Demand?
  7. How Do I Go About Raising Property Investment Finance?
  8. There Are Lots Of Properties On The Market – Is This Good Or Bad?
  9. Is Investing in Property with only £20,000 Realistic?
  10. What Are The Property Growth Areas Of Manchester?
  11. How Do I Find Repossessed Property To Buy in London?
  12. Should I Invest In South Manchester Or The City Centre?
  13. How Do I Evict A Tenant? (Section 8 Notice to Quit)
  14. How Can I Buy a House Without a Mortgage?
  15. What Exactly Is Property Due Diligence?

1. £20,000 to Invest in Property

Is it realistic to invest in property with just 20,000 pounds? Yes, it certainly is.

It’s dependent on a few things, though. It’s dependent, certainly, on the location, on the type of property you’re looking for and on the strategy that you’re going to utilise.

For example, with 20,000 pounds to invest in property you’re probably not going to go straight into investing in a development property in the centre of London worth two million pounds. You could, however, with a twenty thousand pound deposit, buy a very good rental property or renovation project in the North West.

It depends on your criteria, your plans and your aims.

2. Your Property Investment Strategy

So, what I would recommend first is to have a look at the links below which outline a few different approaches, strategies with which to invest in property. I’ll also include a link to our live deals page. We do have lighter deals available but I just wanted to include this to give you some idea as to the areas, price ranges, the types of property which you could buy with a twenty thousand pound deposit. The truth is that with 20000 to invest in property you can get a pretty decent house in quite a few locations in Manchester and the North West.

Also, I recommend that you read our article on setting goals. It helps to sit down and map out exactly what you want to achieve over the short, medium and long term. You will need to think in terms of your tenant profile (working tenants or housing benefit claimants?), the rental yield, the available discount. When you combine these elements with what you want to get out of the investment you should start to form a plan of action where you start to learn what type of property and in what location, is going to work for you.

3. Investing in Leasehold Property

The second part of the question is…

“What is your position in investing in a leasehold property? I live in Brentwood, Essex and plan to source properties in this area. Unfortunately, my research so far led me to think I’ll only be able to afford studio to one-bedroom flats, okay, within my budget and within my desired area. Kind regards, Tanya.”

Ok, Tanya, we have no problem with leasehold property. They can be a very good investment and we have a number of them in our own portfolio at the moment. These are spread across different areas of the North West and they’re a mix of houses and flats.

Some perform better than others

4. Leasehold Charges

There’s one primary difference between leasehold property and freehold property and that’s service charges. Some city centre apartments can have very high leasehold charges. They might have a gym or a lift. Some even have concierges. These things can really ramp up the cost of owning that property. In some cases, you can even find that these charges can give the property a negative cash flow.

So it’s important to factor in leasehold charges when you’re looking to invest in property.

5. Ground Rent

Another thing to consider with leasehold property is ground rent. So, take for example an ex Council apartment building. In cases such as these, the ground rent will probably be very low. We have one where the ground rent is about 10 pounds a year.

We also have other leasehold property where the ground rent is a lot higher. For some, it’s a couple of hundred pounds a year. Remember, these examples are from our own portfolio which is focussed on Manchester and the North West. For different areas of the UK, say Brentwood in Essex, or London, or other parts of the South the ground rent is going to be much higher.

So, with leasehold, it’s important to consider ground rent when you’re looking to invest in property.

6. Term of Lease

With leasehold property, another thing to consider before you invest is the term of the lease (meaning the length of the lease). This is very important when it comes to buying, selling, or even refinancing leasehold property. If there is a short length of time left on the lease then you will run into difficulty when it comes to reselling.

There are very few mortgage lenders who are going to lend money to a property investor if the term of the lease is below a certain number of years. From memory, I think it’s about 75 or 80 years. So, If the leasehold is below that term you might struggle to sell.

So consequently, if you’re looking to invest in a leasehold property with a short term left on the lease, you want to be negotiating for a big discount. You certainly don’t want to be paying the same for a property investment as other similar houses on the market with longer leases attached. But, these short term lease properties can be very profitable if you know what you are doing. If you’d like to know more I’d recommend that you read our post on the goldmine strategy that is learning the lease extension process.

So with leasehold property, the length of the lease is important. In some areas of Manchester and the North West, you can have terrace houses with long term leases attached. The length of the lease could be 999 years from when it was originally put into place. For most of those properties, there will still be 920 or 930 years left. That length of that lease is never going to cause you problem when you invest in property. It’s a problem only for people many generations down the line.

But new developments and city centre apartments may only have a short-term lease attached so you need to make sure you check before you invest.

7. Can I Even Rent It Out?

Finally with leasehold property, not all leases will allow you to rent the property. There can be restrictions that you need to know about before you invest in property. It’s important to ask your solicitor to check through the lease documents to see if there are any covenants or restrictions which will stop you doing what you want to do with that property. So, whether it’s a renovation project or an extension, or you simply want rent that property out you need to check if there are any restrictions attached.

8. Leasehold Property: Putting It All Together

So to recap… leasehold property in general is absolutely fine. It just depends on the specifics. ie…

  1. Leasehold Charges
  2. Ground rent
  3. Term of Lease
  4. Lease Resrictions

Hopefully, that helps. So yes, you can get started and invest in property with a smaller deposit. It just depends on the area and strategy. And yes, leaseholds can make a great property deal.

9. Join Our FREE Training Today

Thank you for watching this video. If you like this content and would like to join our free online property training course we’ve got a link for it on this page. In there we cover a range of different property strategies to help you get started on building a long-term property portfolio or creating a cash flowing property business. We also look at ways to increase your return on investment with any of the properties you may be considering and we also have a couple of cheat sheets and downloadable documents. Just click the image below to join our free training course.

If you have any questions, want to share your own thoughts on leasehold property or anything you’d like to say about investing in property with small amounts of cash just pop them in the comments section below. We’d love to hear from you.

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