If you are interested in real estate investing but unsure of where to start then here is a guide for you. Real estate investing is one of the safest ways of investing your money. But it seems to be incredibly complicated for the beginners.
Beginners may find it tricky where to start from. Luckily you have got this guide, here we are going to put together some simple tips on Real Estate Investing in the UK. If you follow this article then you can buy your first real estate property in the United Kingdom.
Here, in this guide, we are going to discuss what an investment property is, why to invest in Real estate, the benefits of investment, factors you should consider before making passive income through real estate investing in the UK, and risks associated with property investment.
Let’s dive into the deep!
What is an investment property?
An investment property is a property that you owned and rent out to tenants for generating a passive income as part of a buy-to-let agreement. Investment properties include the purchase of a property or building that is being created (off-plan).
You can get the return on the investment from various sources:
- Rental income from tenants
- Capital appreciation while the property is sold
- A combination of the above two
Why should you invest in Real Estate?
The value of your property will increase over the years, so you can research the possibilities of achieving capital appreciation or passive income from the property. Unlike other similar investment categories, the property market is comparatively a simple investment area to navigate.
If you are thinking to start your career in this field, the specifies of investment, and you must learn how to begin building a solid property portfolio from the financial advisors, and experts. If you want to get on the real estate investment ladder, then you must start with diligence and care, and professional guidance.
Property has a high tangible asset value and it has been continuously proven that investment property is one of the most lucrative investment markets in the UK. Plus, this area is applauded as one of the best sources of passive income. For this reason, the demand for the property market is rising day by day.
Another potential reason is that the property market continues to thrive because of the vast population growth that is proportionate to the huge demand for housing. According to some surveys it can be said that by 2023, 20% of the population will be living in rented housing.
So, you can understand that there will not be more suitable conditions arise in the future to invest in Real estate than now.
Benefits of Real Estate Investing:
#1. Passive income:
How a property can generate income from rental costs or capital appreciation along with increasing its value, is an incredibly productive way to increase long-term wealth as well as earnings.
Investing in the property market is a quiet safest approach than investing in bonds, stocks, and shares. Because it is perceived that the stock market is an unreliable and unstable market segment because the stock prices are regularly fluctuating.
As in these market segments, the risks are associated with the investment; property investment is considered one of the most stable markets for investors in the UK.
#3. Stable retirement plan:
The more fund you can generate from your investments, your retirement will be more secure. If you own a property investment at an earlier age then you can grow your fund higher through passive income, along with an increase in the value of the property.
So, at the age of your retirement, you can sell the property to get the benefit of capital appreciation at the right time.
As you are the buy-to-let landlord, so you will have direct control over maximizing your property value. From the property investment, a high level of flexibility can be achieved that allows you to provide additional amenities, and make some improvements that inevitably increase the value of the property.
If you can maximize your property’s value, there will be an increase in rental costs and capital appreciation.
Research your options for Real Estate Investing:
You can go forward with property investment in several ways. You can buy a commercial property or a home directly, or you can put money in a property investment fund. It will be worth putting more time to research these factors to explore your suitable options and decide which type of property investment is suitable according to your needs and demands.
The type of property investments you can go forward with involve:
- Buying a new building to sell on
- Property development
- Investing in property abroad
- Real estate investment trusts and some other investment funds
You can decide to purchase a residential property to rent the property to tenants. Thus, you can generate passive income.
Buying a new building to sell on:
You can buy a building off plan which means you are going to purchase a building that is not completed by the builder. It can let you generate some more money to its value outset by the time it will be finished. Then you can sell the property to make a profit. By decorating it you can also add some more value to it.
However, it can be riskier as you haven’t seen the finished property and you not be sure enough what will be the exact value of the finished property. The developer can even go bust. You can face problems selling that property and you have to continue paying the mortgage till selling on.
If you want to start your career as a property developer then you must acknowledge the risks associated with buying a property, renovating it, and selling on. Besides, you must also learn about the potential rewards.
Investing in property abroad:
If UK Real Estate Investing doesn’t appeal to you then you can consider buying property abroad. You can purchase a property abroad through a holidaymaker and also you can stay in that property while you visit that place for your holidays.
If the property rises its value over time, you can make a profit while you sell it.
Real Estate Investing Trusts:
Real Estate Investment Trusts (REITs) are the companies that invest in property. They generate most of their money through rental income. You can buy shares on them that will be traded in the stock market and other investors will pull your money for investing in other property investments.
Similar to any other share, you can generate money when the share price goes up if you sell them and dividends. REITs have to provide 90% of their income to the shareholders and attain tax benefits in return.
Some other ways of investing in property include:
- Property Unit Trust
- Property Investment Trust
- Property Open-end Investment Companies
- Property bonds and loan notes
- Peer-to-peer lending
- Property ISAs
What factors should you consider before making passive income from investment property?
#1. Be in the right financial situation:
Before proceeding to invest in property, you must ensure that you are in a secure financial situation. You must be debt-free before buying an investment property. It will also be better if you can keep an emergency fund in place that you can access to handle some unpredictable costs such as repairs, decoration, or if the property is vacant between renters.
#2. Get the appropriate investment property:
Before purchasing any investment property, you must figure out your objective of purchasing. Are you going to rent the property to sell it within a few years to generate a profit? Are you targeting the student market and investing in an HMO? You must need to find out the answers to these questions as it will help you to search for a property in a more focused way.
#3. Create a sound business strategy:
To ensure your passive income is successful through property investment, you just need to execute planning and create a business strategy that will help you to achieve your goals. You must need to understand your target market, know the neighbourhood area you are going to invest in, pick the right investment property, and research the market to generate passive income.
After deciding the property segment that you are going to proceed in, you must put some strategy to manage tenants, finances, paperwork, and the property itself.
#4. Choose the right market:
You need to choose the right market for investment property in such a tricky way to generate monthly passive income. You must look for the location also because the location is one of the main factors in investment property. From the demand for the property to the local amenities available, choosing the right property at the right time can determine how profitable your investment will be.
#5. Consider the amenities on offer:
Another important thing you must keep in mind is the amenities available in the area where you are going to invest in the property. This will help you to realize how profitable your investment is going to be. Having good Schools, hospitals, public transport, recreational facilities, career opportunities, restaurants, nightlife, and supermarkets tend to deliver higher yields and faster growth.
Risks associated with Investment Property:
The housing market in the UK is constantly changing. Property prices go up and down, and also the demand for rentals can fluctuate. As the home décor trend is changing day by day, demand for specific homes is also changing. So, if you are investing in single property then you must be aware of the risk factors.
If you are going to invest in property then you must see it as a long-term investment at least for 10 years. That way, you can be able to ride out any storms and you can make a huge profit by selling the property in the right situation.
If you overstretch yourself and then the market falls, you may struggle financially. The best way to spread out the risks is by owning various investments including property. You need to research thoroughly before making any decision and consider taking independent financial advice.
Which is the best real estate to invest in for beginners?
Ans: REIT Investing is the perfect real estate investing for beginners who cannot pursue real estate full-time. REITs are potential property investments that can generate steady, and passive revenue streams.
Is it worth investing in real estate in the UK?
Ans: It has proved in an excellent way that property investment can generate potential wealth over the long term. As it will generate monthly passive income through rental income, and capital appreciation when the property will be sold. In both combined ways the investors can generate more profit through property investment in the UK.
Passive income is one we don’t acquire knowledge about it in our school. In school, we only learn about active income. Passive income is something where we invest once but gets paid forever. The best way to make passive income is through property investment to generate an additional source of revenue.
However, before embarking on any property investment, you must consider several factors that we have discussed above in this guide. You must go forward with the most suitable type of investment property that currently suits your lifestyle, financial conditions, and goals.