How to Invest in Property: A Blueprint for Achieving Long-Term Success

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  • by Property Investments UK

    The Property Investments UK editorial team have been researching and writing about the UK's property market for more than a decade.

Every goal you have in life should start with a blueprint if you want to be successful. Property investing is no exception. Here’s our blueprint for achieving long-term success in property investment.

Contents

Decide on Your Property Investment 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?

This will help you decide whether to invest for income or capital gain, and whether to invest for the short term or long term.

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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 offer a more guaranteed return. When investing for the long term you might consider projects that involve more risk in the hope of a bigger return.

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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.

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An aerial view of the town of Stevenage.

Which is Best – 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.

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Which is Best – 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 (BRRR): You buy a property using short-term finance, refurbish it, refinance it onto cheaper long-term finance and then rent it out.

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.

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What is the Best Type of Residential Property?

Flats or apartments: These are often entry-level property investments. They are usually the cheapest type of property to invest in and are easy to run. They can also be fully managed property investments.

Houses (single lets): A single house let to one person or family. They require a little more investment and a little more management time.

Houses (multi lets): Also known as houses in multiple occupations or HMOs. 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 need 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, 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.

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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.

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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 property.

Good locations for property investment – locations that generate good rental returns and have good potential for capital gains – are normally:

  • 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 property investment location 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, but you can’t improve the location.

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Understanding Demand

Every successful business is about matching supply and demand and this is just as true in property. Before investing in an area it’s important to check that strong demand exists for the type of property project you intend to operate in the area.

  • Family lets: Is the area popular with families? Are there popular schools in the area?
  • Professional lets: Are there professional employers offering well-paid jobs in the area?
  • Student lets: Is there a university in the area, ideally within walking distance or a short bus journey?
  • HMOs: HMOs can be professional HMOs, student HMOs or HMOs let to tenants on benefits. Check that there is strong demand from those tenant groups in your chosen area.

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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, the UK House Price Index and property.xyz.

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

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Property Investment and the Law

You do not need a licence to be a landlord in England in most cases. If you want to let rooms in an HMO you may need a licence. If you want to let property in an additional or selective licensing area you will always need a licence. You can find out from your local council.

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.

These sites also provide more information about landlord rules and regulations in Northern Ireland, Scotland and Wales.

If you are planning any kind of property development you may need planning permission. Check with your local authority or the Planning Portal, 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.

What are the Tax Implications of Investing in Property?

Investing in property can have many tax implications, both positive and negative

Investing in property can allow you to take advantage of some tax allowances and benefits. However investing in property can also create some additional tax liabilities, such as Capital Gains Tax when you sell your investment property.

It’s advisable to take expert advice on property tax planning before starting your investment journey.

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Using a Limited Company or Investing in Your Own Name

Should you buy a property through a limited company? This is a question many property investors ask themselves nowadays.

A key advantage of investing through a limited company is that you will be able to claim 100% of your buy-to-let mortgage interest as a tax allowance, which isn’t possible for a private individual. It can also offer advantages for Capital Gains Tax and Inheritance Tax in some circumstances.

There are 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.

It’s very important to take expert legal and tax advice on whether limited company property investing is right for you.

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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 type of investment performs poorly (or fails) there is a good chance that the others will be successful. Diversifying your portfolio is a kind of hedging your bets.

Here are some ways in which you can diversify 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.
  • 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

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

Another good thing about property investment is that there is plenty of good information out there to help guide your investment decision. For example:

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

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