If investing in property is something you’ve always wanted to try, look no further than this informative guide. We’ll cover the different types of property investment and offer advice on navigating the process. So, read on to discover everything you need to know about property investment.
What is property investment?
Property investment is essentially a form of investment where investors buy properties intending to make money from them. This could involve rental income from tenants and profits from the resale of the property once its value has increased, as well as a combination of the two.
Similarly, an investment property is any property owned by someone to make money rather than live in it themselves.
What are the different types of property investment?
There are many different types of property investment you could go for, each offering unique advantages. Here are some of the types you’re most likely to come across:
Buy-to-let
A buy-to-let mortgage is for the purchase of residential property that you intend to let out to tenants, rather than live in yourself. This is by far the most popular type of property investment as this category is considered low risk due to the lower financial output needed and the typically lower costs associated with purchasing a buy-to-let property. Rental properties allow the investor to benefit from a constant rental income, high enough to cover monthly mortgage payments and maintenance costs, with room for profit. A buy-to-let investment is perfect for those looking for long-term financial benefits who wish to build a portfolio. Additionally, landlords can benefit from capital growth returns when the property is eventually sold.
Operating in a very similar way are student buy-to-let properties. This type of property investment is a good starting point for first-time buyers due to the low purchase prices and high average yields. Furthermore, demand for student accommodation continues to grow in the UK as its higher education reputation remains unrivalled, attracting thousands of students across the globe each year - this makes this an undoubtedly profitable venture.
Property development
Property development is another prominent form of property investment. The biggest advantage of property development is the potential to generate significant return on your investment. Additionally, if done correctly, property development can deliver profits faster than other types of investments such as bonds and shares and is generally a stable investment option.
Buying a new build to sell on
Buying a new build off plan, which means before it’s been completed by the builder, could make you money if its value has gone up from the price agreed at the outset by the time it’s finished. However, despite the potentially huge discount on the initial property purchase price, this form of investing can be often considered as risky. This is because you have no solid way of knowing how the finished property will look and if the developer is inexperienced, then this could cause further problems.
HMOs
Houses in multiple occupation (HMOs) are essentially house shares in which the property is rented out room-by-room to unrelated individuals. This form of investment is particularly prevalent in student residences but can be applied to any group. HMOs have increased in popularity in recent years, as renting out a property by the room tends to generate more revenue than letting it as a whole. However, it’s important to remember that these properties can often incur higher costs as HMOs tend to be furnished with bills included, plus there's likely to be more wear and tear. Management is more time-consuming too, which means either higher letting agent fees or more involvement from the landlord.
Investing in property abroad
Of course, there is always the appealing prospect of investing in property abroad. This investment opportunity attracts many people for a number of reasons - you’ll be able to enjoy your own personal holiday destination booked and ready for use all year round while noticing a higher letting value per week than with a standard residential lets. However, you’ll have two significant debts to manage if you have a mortgage on your property abroad as well as in the UK. You might also see a potential shortfall if your rental income doesn't cover the mortgage payments.
What are the benefits of house investment?
Property is a form of investment that is particularly profitable, offering considerable stability if done correctly. It has many advantages, including:
Passive income
The way in which property can increase in value and generate income from rental costs or capital appreciation is an incredibly productive way of earning and increasing long-term wealth. The best part of this is that it often doesn’t even require a great deal of effort and you won’t have to do too much.
Long-term security
The more income that you generate by investing in bricks and mortar, the higher the funds available to secure yourself a strong retirement fund. According to a recent study by The Telegraph, the way property prices currently are, a person investing in a property today worth an average of £235,000 will be worth roughly £1m by 2038. This means that property investment has the potential to make you financially secure in the long run.
A low risk option
Rental properties are currently in high demand in the UK. Compared to other less tangible investment strategies like stocks and shares, buying property is considered relatively low risk compared to other types of investment. This is in part because property investments which provide strong cash flow have the ability to help get investors through periods of instability or uncertainty that other types of investments can provide at times, for example during a financial crisis or a recession. After all, there will always be people looking for somewhere to live.
What should I consider before investing in a property?
Before jumping into the investment process, there are several considerations that you should keep in mind:
Evaluate the risks
While it is true that property is low risk in comparison to other investment options, it’s important to remember that the housing market is constantly changing. Property prices go up and down, and the demand for rentals can fluctuate. This means you’ll have to think about things in the long term - will this property still serve you well financially in ten years?
Work out whether you can afford it
Is investment a viable option for you? You'll need to calculate your income and outgoings in an average month to see how much you have to spare. You should also look at what other money you have available to invest. This will include any savings accounts, ISAs, premium bonds and investments like shares, bonds and unit trusts.
Compare mortgage deals
Once you’ve decided you’re going to buy property to let as an investment and know how much you would be able to pay as a deposit (although make sure you keep enough money aside for all the other costs involved), you can start looking into what lenders might be prepared to lend you and how much the mortgage repayments would be each month. To do this, you’ll need to work out how much rental income you are likely to need.
Find the right property
It’s important not to rush the investment process. You need to make sure you do the correct research before committing to a particular property - this means taking a thorough look at potential tenants and areas. For example, if you’re hoping to rent to students, somewhere near college or university campuses makes sense. However if you want professional tenants, go for a property with good transport links, or if you want to rent to families, look for family-friendly areas.
Holiday lets and more available at Lev Properties
Lev Properties is a leading company for Liverpool investors, providing a comprehensive, fully managed property investment service that puts you and your needs at the core of its ethos. We currently manage approximately 900 properties on the British market, and as such can boast an impressive and varied property portfolio. It is our priority and commitment to work directly with you to achieve your investment goals and objectives. Above all, we listen to you and your needs throughout the property investment process, all while utilising close to 20 years of property investment knowledge and expertise throughout. To find out more about our services and rentals in Liverpool, contact us today.