The Complete Guide to Property Investment

The world of property investment can be daunting for newcomers, with so many varied factors and figures, where do you begin? To try and help answer your questions, we have put together this guide on how to get started with property investment.

What is property investment?

At its core, property investment is a method of investing money into property in order to generate a profit and, if done right, can be highly lucrative. There are many factors that go into investing in property such as the type of investment, type of property, the location, and so much more. It is important to have understanding of what you’re investing in before putting the money down.

Types of property investment

There are many types of property investment, however there are two types that are more prevalent than the others.

Buy to Let

Buy to let (BTL) property investment refers to the purchasing of a property for the specific purpose of renting it out to a tenant. There are different types of let that can be considered such as short-term lets (e.g. holiday lets) and long-term lets.

Buy to let investors often hire property management companies that manage the properties in their portfolio on their behalf. This can be quite a enticing option for investors who are looking for a truly ‘passive’ income.

Buy to Sell

When investing in buy to sell (BTS), you’re purchasing the property in order to sell it on for a profit, this method of property investment is also referred to as “flipping”. The benefit of a buy to sell investment strategy is that it often has a good Return on Investment (ROI) with a quick turnover, allowing you to move onto the next property with ease.

However, BTS investment can sometimes incur a greater risk due to the potential for overspend on refurbishments and fluctuations in the market. Due to these risks, when considering a buy to sell property, it is essential that the property is purchased for a good price in order to reduce the risk from the get-go.

Is property a good investment?

The legislation and regulations around property investment have changed in recent years. The introduction of a 3% stamp duty surcharge on second properties in 2016 and a reduction in mortgage interest relief means that the cost of entry for investing in property is higher than in previous years. However, this doesn’t mean that the right property can’t be a solid investment opportunity.

Due to high demand for property in the UK and the average rent increasing, property can still be a very good investment choice. When letting to long term tenants, property can be very reliable providing a stable income throughout the period of the tenancy agreement. This reliability and increasing rental income means that, if you find the right property, your investment could generate good amounts of revenue for you.

How to invest in buy to let property

Getting into property investment can be quite daunting for a beginner. When looking to invest, there are many variables that you must consider, here are some of the important ones that we recommend that you think about before purchasing your first property.

Decide what you want to achieve from your investment

Settling on your objectives with your investment should be the first decision that you make as a property investor. Whether your aiming for maximum yield or to cash in on capital appreciation can have a significant effect on the type of property that you should look to invest in, not to mention the timeframe that you will be holding your investment for.

This is especially true for the former as if you’re looking to maximise your rental yield a student property investment could be your best option. However, if you’re looking for the best capital appreciation on your investment then a residential investment might be the way to go.

Choose an affordable budget

Another thing to think about before progressing through the stages of your investment is how you’re going to finance. The type of financing can drastically change the steps that are required to complete the process. Whether you’re financing your investment with cash or with a buy to let mortgage, ensure you take the time to understand the implications and steps required for each.

Budgeting is an important aspect of any kind of investment whether it be stock, or in this case, property. As with any kind of investment, it’s a gamble. So, ensure that you can afford what you’re buying and consider the money that you put into it as lost until it’s been earned back. This will protect you from overspending and finding yourself in a problematic situation should the investment not be profitable.

Consider the property type

You should also consider the different types of property that you can invest in. Each type has its own benefits to think about and some may be more suited to you budget and other requirements. The main property types are:

Tenanted

Tenanted properties are properties that currently have sitting tenants. These properties are often highly sought after by investors as they can start producing rental income immediately after purchase if the tenants decide to stay after the sale.

Complete

The term “Complete” is commonly used to describe the construction status of a property development and means that the development’s construction is complete. This is a good option for investors who want to begin to earn rental income soon after the purchase as tenants can move into the property.

Off Plan

“Off plan” refers to purchasing a property based on the construction plans and projected financial figures. This property type is often found when investing in large scale property developments where many units are being sold to help fund the project. Off plan properties can be a riskier investment but can often return a higher reward as purchasing off plan can lead to a discounted rate than buying the completed unit.

Student

Student housing can be a good investment for new investors as there is always a very high demand during term times and the cost of purchasing a unit is often lower than regular residential properties. In addition, student properties are usually located within large cities and nearby the universities so rental yields can often be higher.

Choose the right property

One of the more important decisions in the investment process is choosing the right property. This can also be one of the more difficult choices as there are so many considerations that go into this one choice.

Type of building

Consider the type of building you want to buy. If you want to buy a house, consider whether a terraced, townhouse, detached, or semi-detached property is best investment. Also consider whether a flat or commercial property would be best. Each one has its own benefits which can change based on the location among other factors. For example, the demand for flats will be higher in the city centre than in suburban areas.

Amenities

The amenities around a property can play an important role in the demand for the property. Better amenities often amount to a higher demand for the property, especially when it comes to student and city properties where the transport links and proximity to shops and entertainment play an important role.

Location

It’s the age old saying when it comes to property, “location, location, location”. Having a property situated in a high demand and enticing area is one the biggest selling points. This is especially true when considering short term and holiday lets as holiday-goers will pay a premium for a rental in a popular location.

Maintenance

You should also consider the maintenance costs of each property as it can eat into the overall profitability of your investment. Bigger properties intrinsically come with higher maintenance costs, the same can be said for older properties that may require more frequent repairs. When budgeting for maintenance costs, it is recommended that you over-budget to not get caught out.

Layout

Layout is another aspect of a property that can drive demand. Undesirable or ‘quirky’ layouts can put off some potential tenants but may be attractive for others. In order to maximise your potential tenant pool, look for a property that has a layout that will likely have mass appeal.

Find the right tenants

We’ve all heard about “nightmare tenants” which cause nothing but stress for their landlord. Choosing the right tenants and maintaining good relationships with them can mean the difference between a sound investment experience and hellish one. Landlord-tenant relationships are important, having a good relationship with your tenants can bring many benefits such as improving the likelihood that they extend their tenancy agreement.

When screening for tenants we recommend that you perform the appropriate checks and when meeting the tenants in person, ensure that you ask lots of questions and ascertain the character of each prospective tenant. Most importantly, you should trust your instinct, if you have a bad feeling about a potential tenant then you don’t have to offer them an agreement.

Residential vs Student Property Investment

When investing in property, the two most common types are residential and student properties. Each of these types of property has its own benefits with some investors even exclusively investing in one type while others may prefer to diversify their portfolio and invest in both.

Benefits of student property investment

There are many benefits to investing in student property including the fact that a student investment often doesn’t incur any stamp duty charges, due to the fact that many entry level student properties fall below the £125,000 threshold introduced in The Finance Act 2016. Despite this, the most attractive element of student property investments is that there is consistent and predictable demand due to university term times. This means that the worry of maintaining tenants can be minimised.

Student properties can also be lower maintenance than other types of property investments. This is because, in most cases, the developer will appoint a dedicated property management company to run the development once it is completed. This effectively means that a student property can be a hands-off investment generating you passive income.

Benefits of residential property investment

Residential property investment also comes with its own advantages over other aspects of the property investment world. One advantage of residential property is its vast prospective tenant pool, increasing your chances of finding a tenant. If you’re able to find a property in the right location, you may be able to find a ‘young professional’ tenant who may be open to a higher rent payment, therefore increasing your rental income.

The residential property market is currently experiencing some of the highest growth that it has seen in years, with UK property prices to continue to grow by more than 13% by 2026. This means that residential property investors can take advantage of excellent levels of capital appreciation over the coming years, especially if you have an excellent property in an excellent location.

Should you invest in student or residential property?

Both student and residential properties can make excellent investments. There are attractive benefits on both sides with the constant demand for student property and the opportunity for higher rental yields from residential properties.

When it comes to choosing the right type of investment, base your decision on your current situation. If you’re happy to pay the, potentially, higher prices and find a tenant for residential property then that may be the better option for you. But if you would prefer a lower cost of entry into the market and with a constant and predictable flow of shorter term tenants then a student investment could be for you.

How to find a good tenant

As we mentioned before, finding the right tenant is one of the most important aspects of having a smooth property investment experience. Taking the proper steps to find the best tenant can significantly improve your chances of having a positive investment experience.

Decide on your target tenant beforehand

Consider your target tenant before listing your property, are they a family or a young professional? This decision can help you weed-out any undesired tenants before spending time and resources completing the other checks.

Thorough background checks

Completing a background check on a prospective tenant can help uncover any red flags that they may have hidden. For example, if they have poor credit they could be consistently late on paying their rent.

First impressions

First impressions can often be a good indicator of how a relationship with someone is going to, so trust your gut. If a prospective tenant has come for a viewing and you have a bad feeling about them, remove them from the tenant pool.

Don’t rush in to the decision

Don’t rush your decision on, take your time and consider as many potential tenants as possible. This will increase your chances of finding your ideal tenant and will save you both time and money in the long run.

Meanings of key figures

When investing in property, there are lots of different figures that you need to understand in order to properly gauge how your investments are performing. Some of the more important metrics to get you started are:

Rental income

Rental income is any payment that you receive from your tenants. Payments that can be included in rental income are:

• Rent
• Payments for use of furniture
• Any additional charges for services that you provide (e.g., cleaning)

Yields

The yield that a property produces is an annual return on the investment, typically a percentage of the capital value of the original investment. There are three main types of yield within property investment that different types of investors may benefit from, including Gross Yield, Net Yield and what is known as All Risks Yield.

Gross Yield

This type of yield is based on the return on investment before any expenses you may have, are deducted. This type of yield can be calculated by a simple calculation that sees you divide Annual Rent by Property Value to get your Gross Yield.

Net Yield

The Net Yield of a property is return on investment that you have after your expenses for that property have been deducted. There can be several outgoing costs that affect the total Net Yield, including repairs and maintenance, rates and insurance, management fees and transaction costs, all of which could be significant to the total Net Yield.

All Risks Yield

This type of yield is particularly relevant to investors investing in commercial property as valuation professionals, chartered surveyors and property valuers will use this to showcase risks that certain investments may have.

To understand an all-risks yield, there are certain things that need to be considered, including the fact that in an increasing property market, property yields are likely to fall due to the market demand forcing property prices up, whilst rent stays static, at a lower percentage of the total value.

However, if the property market falls, the yields are likely to increase due to a higher percentage of the total value.

Ground Rent

Ground rent is the money that is paid the freeholder of a development, by the leaseholder. This charge is often small, in the region of £50 per annum.

Service charge

If you’re choosing to invest in a managed development, you may be required to pay a service charge. The service charge is the payment that covers the cost of upkeep for the development and its communal areas and is usually charged on an annual basis.

Can you mortgage an investment property?

You can, in fact, mortgage buy to let properties. However, you require a special type of mortgage when borrowing for a rental property. A buy to let mortgages are often more expensive and have higher interest rates than a traditional loan. The reason for this is that they are typically calculated based on the projected rental income of the property that you are looking to borrow against.

How to make your investment property profitable

There are many ways that you can make an investment property more profitable. One of the easiest ways is to provide additional services that your tenants will likely find useful, for example a cleaning service. By providing additional services, you may be able to charge a premium on the monthly rent as a result.

Additionally, pet-friendly rentals are high in demand and many pet owners may be happy to pay more for a rental that their pet can live in too. However, when considering whether or not to allow your tenants to keep pets, it is important to think about the added maintenance costs that allowing pets can incur.

Thirdly, having good relationships with local contractors may also help increase the profitability of your property. This is because, by providing regular work for the contractors you may be able to negotiate lower rates for continued service. This will ultimately reduce the total overhead of your property.

Selling your investment property?

There are many reasons to sell an investment property; for example, you may be looking to upgrade your property, or your investment may no longer be profitable.

How to sell your investment property

Selling an investment property is often very similar to selling your own home but with some key differences:

• It is important to choose the right estate agent and advertising methods – If you’re selling your property to another investor or to a homeowner, it is important to research and decide on the best advertising methods for each type of sale.
• Make the yields and other important figures clear for other investors – If you’ve decided that you would like to sell your property to another investor, then it is essential that you collate and make all of the necessary financial information clear in the listing.
• Allow other investors to see who the tenants would be - If your property is tenanted, it is important to provide potential buyers with their information so that they know who will be living in the property once the sale is finalised.

Why sell a tenanted property

There are many reasons why you might want to sell a property while it is tenanted. One of these reasons is that tenanted properties can often carry a higher demand as investors can make immediate rental income after their purchase has been completed.

In addition, selling a property with sitting tenants allows you to sell earlier as you don’t have to wait for the lease period to expire before selling. This also has the added benefit of allowing your tenants to remain in the property if they wish to renew their lease.

When to sell your investment property

There are numerous factors that go into knowing when it is time to move on from an investment property. One tell-tale sign is when the property market in the area is in decline, and your property isn’t growing in value. In this instance, you may want to off-load your investment to protect your profits.

Another reason that you might want to sell your investment property is if you have discovered another property that has a higher potential profitability. If this is the case, you may want to sell your current property in order to be able to afford the purchase of the latest opportunity.

The third, and possibly most obvious, reason to sell your property is if it is no longer profitable. This case could come about for any number of reasons, such as the maintenance costs are beginning to overtake the rental income, or your tenants do not want to renew their lease. When this happens, it may be the best option to sell the property and cash in on the capital growth that has accumulated over the time that you have owned the property.

Looking to invest in property?

If you’re looking to invest in property, you’re in the right place. Here at Pure Investor, our dedicated team of property experts are on hand to help find the investment opportunity that you’ve been looking for.

We specialise in a wide range of investment types; from buy to let investments, all the way to student property and off-plan developments. If you can’t find what you’re looking for, get in touch with our team who will be happy to guide you through the process of finding your ideal investment.

Why choose Pure Investor?

The key to the success and growth of Pure Investor in recent years has been our location on the outskirts of Manchester. Strategically located to offer all our consultant’s easy access to Manchester, Liverpool, Sheffield, and Leeds, we are regular visitors to all the major property developments within the key Northern Powerhouse destinations.

We are passionate about the growth and development within these locations, ensuring our consultants have a high level of expertise regarding the development opportunities within these key growth areas. For this reason, many investors choose to speak with Pure Investor first when considering property investment in the North England.

We genuinely believe in working with our clients, providing a high quality of service and information, allowing our clients to make their decision on a more informed basis. As a result of this, an increasing number of investors are choosing to return and utilise our services on an ongoing basis. This is something we are incredibly proud of, and which we are looking to continually improve on in the future.

If you are considering in investing in a property in the North of England, and don't fancy the 'hard sell' approach, please feel free to get in touch on either enquiries@pureinvestor.co.uk or call 0161 826 4606.

We look forward to hearing from you!