How to Invest in Property: A Guide to Getting Started

Property can seem complex, with many different strategies, and many things to consider (like yields, growth, demand, supply, sellers, negotiation, tenants, and maintenance to name a few), but getting started and learning how to invest in property is more straight forward than you might think.

Every goal you have in life should start with a blueprint if you want to be successful and property investing is no exception. Once you know 'Why' you want to invest in property the 'How' becomes much easier. Once you have this blueprint, it's much easier to stay on track and achieve your desired outcomes.

In this guide, we look at a shortlist of initial things you can consider when looking at how to become a property investor to help you get started on day one, and on the way to your first buy-to-let.

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Robert Jones, Founder of Property Investments UK

  • by Robert Jones, Founder of Property Investments UK

    With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
An aerial view of the town of Stevenage.

Your Property Investment Guide: Your Objectives

Are you looking for a sideline, or are you looking for a full-time income from property? How much money, ideally, do you need to generate from a property?

Is your property investment going to be part of your pension? If so, when do you plan on retiring?

Clarity on these goals will help you decide whether to invest for income or capital gain, whether to invest for the short term or long term and what property investment strategy is likely to be the right one for you.

Short term Vs Long Term

What sort of timeframe do you want to invest in property over? Do you want to invest over 5, 10 or 20 years or longer?

Why timeframe is important in property investment: When investing for the short term you’ll need to look for safer, less risky property investments that have a clear path to exit, so you can quickly sell your properties if you need to and that offer a more guaranteed return.

When investing for the long term you might consider projects that can deliver a higher return over many years and maybe more focused on capital growth from buy-to-lets than say a short-term flip.

Investing for Income or Investing for Capital Growth?

Do you want a regular income from your property investment? Or are you hoping to grow your capital?

For income, you’ll need to consider investments like buy-to-let, which generate consistent income by way of rental income.

For capital growth, you’ll need to consider projects like buy-to-sell or development which will, hopefully, generate lump-sum returns.

In practice, most property investors diversify and invest in a combination of projects that offer both income and capital growth.

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Active or Passive Property Investment?

Do you want to be a hands-on (active) or a hands-off (passive) property investor?

Hands-on investors get involved with their projects themselves. They deal with builders, plumbers and other trades themselves. They deal directly with tenants and tenancies.

Hands-off investors use professionals to fully manage their projects.

Hands-on property investment takes more skill, commitment and time. Hands-off property investment can be a better option for those who are time-poor.

Hands-Off Property Investment Strategies

Hands-off (also known as passive or hands-free) property investing are the strategies we get asked about most.

Historically, investing in property has been a very time-intensive thing to do. It has involved drawing up extensive lists of investment opportunities, meeting with estate agents, and mortgage brokers; actually going out and viewing properties with an extensive checklist and knowing what to look for (whether searching for on-market opportunities or harder-to-find off-market property gems).

Recently, things have gotten a lot easier, not least of all because the internet has made access to property data, information and property courses and education a lot easier, so knowing how to invest is no longer an issue.

Property deals are also easier to find and networking with other professionals has been made much simpler by virtue of social media, online events and active property communities across every major UK city.

This is why enquiries for hands-free opportunities are growing. It's easier, quicker, and leverages the time of experts.

These strategies can include:

Sourced and ready-to-go opportunities

With a ready-to-go property deal, you don't need to worry about shortlisting properties from estate agent listings, or about having to go out and view property, after property, after property. Instead, you can be presented with a wide range of options, with full due diligence carried out by the sourcing agent, and financials all prepared, and once you've purchased you can be making money from day one.

Crowdfunding

Crowdfunding is a great way to get started and can help you invest in property without buying a house, as you are investing as part of a 'crowd' and a company, rather than buying the property outright yourself.

Because of this, you will need much less money. Furthermore, property crowdfunding deals are fully hands-off. Buying through a crowdfunding platform means that you are putting your money into a fully managed service, where nothing more is expected from you.

So, you won't have tenant issues to deal with and you won't have to spend your time chasing refurbishment teams or dealing with estate agents.

If you are working with a particular crowdfunding company, they will present you with a range of hands-off opportunities. There are some downsides with this property strategy, however, including you might have to commit money to the project for a certain amount of time, be it six months, a year, or longer.

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A view of Temple Quay in Bristol.

Which is Best

When learning how to invest in real estate, looking at the 'best' is a common approach. Searching for answers to questions like the best property type, location, tenants et al. Below we have a quick property guide on the most common questions

Residential or commercial?

Residential property is generally easier to get started in. It is cheaper, easier to get finance for and easier to manage. Residential property to buy or rent is in high demand, so it is generally less risky.

Commercial property investment can be more risky and is more difficult and expensive to finance. However commercial property investment can offer tax advantages. Commercial property investment can offer tax advantages for some investors who want to invest in property through their pension scheme.

Buy-to-let, buy-to-sell or property development?

  • Buy-to-let (BTL): This will produce a regular income and, hopefully, a capital gain in the long term. Can be either a hands-on or a fully managed hands-off investment.
  • Buy-to-sell: Also known as flipping. You buy a property and then resell it, hopefully for a profit, perhaps after renovation or refurbishment.
  • Buy, refurbish, refinance and rent: You buy a property using short-term finance, refurbish it, refinance it onto cheaper long-term finance and then rent it out. This strategy is also known as BRR.
  • Property development: You invest in property with a view to developing it into a more valuable type of property or splitting it into multiple properties.

The best type of property investment depends on your personal investment objectives. Everyone is different and there is not a one-size-fits-all approach that should be taken.

Best type of property to invest in?

Flats (apartments): These are often entry-level property investments. They are usually the cheapest type of property to invest in and are easy to run. You can buy a traditional apartment and rent to traditional tenants or you can buy a purpose-built student property investment.

Houses (single lets): A single house let to one person or family. They require a little more investment as a terrace house, semi-detached or detached house is often a more expensive asset.

Houses (multi lets): Also known as houses in multiple occupations or HMOs. This is a house let to a number of people by the room. HMOs normally offer much higher returns than single lets. They are also more expensive to set up and run as you have costs like furniture and utilities that you don't have in single lets. The costs of the properties are often much higher as it requires typically 3+ bedrooms with most professional HMOs and Student HMOs actually having 5, 6 or even 7 or more bedrooms. Because of the increase in tenants, it will also require more management time.

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Raising Finance

Planning your finances and setting a budget is an essential part of a successful property investment blueprint.

Cash: What cash do you have available? What deposit do you have?

Finance: What mortgage finance can you raise? For example: Using a loan, buy-to-let mortgage, bridging loan or development finance?

Other sources of funding: What other methods of finance are available to you?

For example, finance from a friend or relative, equity investment from a partner, peer-to-peer finance or crowdfunding.

It is advisable to take expert advice on the most suitable way of raising finance for any property investment project.

Budget for taxes and fees: When planning to invest in property allow not only for the purchase price. Also allow for extras such as stamp duty, house survey costs, finance charges, and legal and professional fees.

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What is Meant by Gearing?

Gearing is an important concept in the property business. Gearing means using a small amount of capital to control a large amount of property by utilising borrowing.

For example, assume you have a 10% deposit with which to purchase a property and look to borrow 90%. By doing this you can use a £10,000 deposit to own £100,000 of property. You can use a £100,000 deposit to own £1 million of property.

More highly geared property investments offer a higher return on capital. But they are more risky and more sensitive to interest rate rises.

What is Meant by Yield?

Yield is an important concept in the property business too. Yield is the return you make on the money you put into a buy to let investment expressed as a percentage.

Gross yield = Annual rent divided by the purchase price of a property x 100.

Gross yield is a very basic calculation. However, the purpose of yield is that it allows you to see what return you can get on your money and compare different property investment opportunities back to back to broadly identify the best ones.

An aerial view of Ipswich on a summer day. Clouds in the sky and the bridge and river in the background

Why Location Matters

Location, location, location is an often-said phrase in real estate.

Good locations for property investment, are locations that generate good rental returns and have good potential for capital gains. These are normally areas that include:

  • Locations with good transport, with road, rail and bus links.
  • Locations with good local amenities, such as shops and schools.
  • Locations with good access to places of employment.

Other factors which make a good area include locations with a moderate crime rate, low environmental pollution or flood risk, and good access to green space.

Here’s why this is important: You can improve a property by investing in it, developing it and adding value, but you cannot improve the location.

Many major cities like London, Manchester and Birmingham are popular for this reason.

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Understanding Value

Before investing in property it’s essential to gain an understanding of local property prices.

  • What is the average property price locally? What is the cheapest property locally and what is the most expensive?
  • How are local property prices moving? Up, down or staying the same?
  • Is the local market hot, cold or somewhere in between? Is it a buyer’s market or a seller’s market? Can you buy a property below the asking price, or not?

If you are investing in buy-to-let property you also need to understand local rents. What is the average local rent? Are local rents rising, falling or static?

There are many sources of information to help you understand value. For example Rightmove, Zoopla and the UK House Price Index.

Local estate agents can also advise you on local buying and possible selling values.

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Property Investment and the Law

Buy-to-Let

You do not need a licence to be a landlord in England in most cases for traditional buy-to-let, however, this does vary by city and location.

Some cities have 'additional' or 'selective' licensing in place that cover specific regions, postcodes and streets. So if you are buying a property in a new area it is worth checking with the local council. Here is an example of the licensing requirements for Oldham Council.

In addition the government’s How to Rent guide will tell you about other rules and regulations you need to know about in England.

In Scotland, you will need to register with the Scottish Landlord Register. In Wales, you will need to register with Rent Smart Wales. In Northern Ireland, you will need to join the Landlord Registration Scheme.

HMOs

For a house of multiple occupation, let by individual rooms, you may need a licence if the property has 3 or more tenants, under a requirement called 'mandatory' licensing. and you may even require planning permission depending on the size of the property and if the council has something called Article 4, like Manchester City Council.

All property types

If you are planning any kind of property development you may need planning permission. Check with your local authority or the Planning Portal, to see what is required in the area ideally before making an offer.

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An aerial view of a housing estate next to a park. Photograph of the Western Estate in Macclesfield.

Using a Limited Company

Should you buy a property through a limited company? This is a question many property investors ask themselves, and for good reason. The tax treatment when you own a property via your own name (a sole trader) compared to owning an asset in a limited company is different. This tax treatment includes key costs like mortgages.

Owning via a limited company can also offer advantages for capital gains tax and Inheritance Tax in some circumstances.

There are also disadvantages of property investment via a limited company though. It involves extra administration costs. It may also be more difficult and expensive to get a loan or mortgage for your property investment with less favourable mortgage options and fewer lenders.

It’s very important to take expert legal and tax advice on whether limited company property investing is right for you, for both your short term and long term plans.

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Why Diversification Matters

What is meant by diversifying your property portfolio?

You may have an idea of what type of property investment projects you are most interested in. However, it is also a good idea to consider other opportunities too. This is known as diversifying your portfolio.

The main attraction of diversifying your portfolio is that, if one property in your real estate portfolio performs poorly (or fails) then you have others that could be successful.

Here are some ways in which you can consider diversifying your property investments:

  • Combine projects that are safer but offer a lower return and projects that are more risky but will hopefully offer a higher return.
  • Invest in a property that generates income and property that will hopefully generate a capital gain.
  • Invest in buy-to-sell as well as buy-to-let.
  • Invest in buy-to-lets that appeal to different tenant groups (singles, couples, families)
  • Invest in residential and commercial property.
  • Invest in higher-value properties and lower-value properties.
  • Invest in properties in established areas and property in up-and-coming areas.

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Get Expert Advice Early

As with any investment, it is important to take the best advice you can to help guide your investment journey.

One of the best things about investing in property is that there are plenty of professional advisers and other experts available to advise you. the industry is setup with support across each major part of the property journey including

These key contacts can make it possible to successfully invest in property even if you know very little about it.

There is also plenty of good information out there to help guide you. For example:

  • Property books and magazines.
  • Property websites and blogs.
  • Property courses.
  • Property meet-ups and seminars.
  • Property investor exhibitions and events.
  • Networking events, such as landlord networking groups.

So you are not alone. You can learn quickly the key aspects of property to help you get started and work with experts along the way.

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