How to invest in a UK property
If you’re thinking about making a financial investment, property is a safe bet when compared to higher-risk options such as online stocks, bonds and cryptocurrencies.
Although house prices can rise and fall, just the same as shares, buying somewhere for a family member to live in or to rent out to paying tenants, will still make you money over time.
However, as with all property purchases, location is the key to success. Finding out where you should invest is just as important as how you should invest in property in the UK.
But first, perhaps, the most important point to consider is why you should invest in UK property.
Is UK property a good investment in 2021/22?
Thanks to the Stamp Duty freeze, falling interest rates and numerous bargains to be had in England’s Northern Powerhouse region, there’s no better time to invest in UK property than right now.
Traditionally, in comparison to the rest of Europe, UK residents are particularly keen on buying property rather than renting. This cultural nuance ensures there’s a greater chance you’ll see a return on your investment when it comes to selling.
Also, as the UK is an island, there’s not infinite land to go round. This lack of space and an increasing population ensures demand for houses will continue to rise over time. Especially so if the property is located in one of the core cities of the Northern Powerhouse, such as Leeds.
This region of northern England has seen substantial economic growth and investment since 2015 with rail networks and road links providing greater connections to the rest of the UK, and Europe, than ever before.
What UK property investment options are there?
Buying your own home
Traditional property investment allows the homeowner to take advantage of any increase in value that might occur over a period of time. It’s a tangible asset and also ensures you’re not spending all your money on rent instead of paying off the mortgage. The only downside to buying your own home is that if anything goes wrong, you need to pay for it. Also, in uncertain times, if you can’t pay the mortgage, your home can be taken away from you which can be stressful.
Buying to let options
This method of property investment allows you to increase your income sources two-fold. Firstly, through the rise in value of the house and secondly, from the rent paid by tenants.
The key is to set the rental payments higher than the mortgage repayments to ensure you make a profit. Also, having long term tenants provides a steady source of income so you need to ensure they’re happy and the house is well maintained.
One major financial headache with buying to let, other than the upkeep of the property, is the whopping great 25% deposit (minimum) required in the initial outlay. This is why many buy to let property investors are opting for northern cities like Leeds as deposits are much less than down south. For example, the average deposit on a buy to let property in London is practically £120,000. You can almost buy a house outright, for that in the North of England or Scotland.
Real estate stocks & shares
If you’re wondering, how can I make money from property in 2021? One alternative to purchasing a property is to invest in the stock market. This is where you put your money into listed companies that are the landlords for a varied portfolio of properties (which can include warehouses, factories and retail units).
Unlike other stocks and shares, investors can actually view their investment so they know what they’re getting and where it’s located. REITs (Real Estate Investment Trusts) are how to make money from property in 2021 without needing a large deposit. REITs were brought into the UK back in 2007 as a way for people to make money from property without having to shell out on a deposit.
Three-quarters of the profits made from REITs have to be from the rent of the property rather than the building. Investors receive a portion of the rental profits in the form of dividends. It’s a steady source of income as fixed rental agreements don’t tend to fluctuate. However, as many high street shops and mega malls are seeing less and less customer footfall – it’s worth thinking about which real estate investments are going to be financially viable in the future.
Purchasing property for investment with private funds
If you’d prefer not to dabble in the stock market, there’s always the option to get together as part of an investment group. This allows combined funds to be managed by a real estate investment group that charges for their services as well as providing profits on sales. Most investors consider this to be a long-term project with funds tied up for a number of years before witnessing any real profit.
Crowdfunding is another way to invest in property. It’s the same principal as the private investment strategy where your share of the profits comes from any future property sales. Depending on how risky you want your investment to be you can choose to put all of your money into just one or two properties or you can spread your funds across a more diverse portfolio.
How to invest in UK property with minimal risk
There are numerous things to think about before investing in a property deal. Do you have to put 20% down on investment property? Is one of the most commonly asked questions.
These days, you have to put at least 20% down first before a mortgage lender will consider loaning you the money to purchase a house. Of course, as mentioned, you don’t always need a deposit to invest in a property. There are real estate stocks and shares in investment groups that can be bought for a fraction of the property’s overall value.
You also need to think about how involved you want to be once the property’s purchased. Do you want to look after tenants or would you rather pay estate agents to do the job for you? If it’s the latter and you do want to look at northern cities, such as Leeds, then it’s worth making sure you get the right estate agents for the Job.
Also, when do you want to see a return on your investment? Are you looking for regular monthly payments straight away or are you happy to sit back and wait for the value of the house to rise over time?
Access to your money, when you need it, can be the difference between high and low risk options.
What is the 1% rule for investment property?
If you’re worried about whether or not a property investment in the UK is going to be financially worthwhile then it’s a good idea to consider the 1% rule. This is where the total of your monthly rent should be the same as 1% (minimum) of the gross investment that you made buying the property.
This includes not only the price of the property but also any other money that you’ve paid out for maintenance, refurbishments etc. By following the 1% rule you’ll be able to invest in properties that are going to be profitable with the minimum of risk.
Where should I invest in UK property in 2021/22?
First and foremost, if you’re looking to make money, put aside any romantic visions of white picket fences in the Cotswolds. Instead, start to look at the following: transport links, local investment, rental demand, regeneration projects, rental yields and regional price variations.
Next, consider which location works for your money. The further north you travel from London, the more options you’re going to have in terms of deposit and value for money. Basically, anywhere within the Northern Powerhouse collective is going to be a sound investment.
The Northern Powerhouse is a region that’s received serious government investment for the last decade. Key cities include Leeds, Hull, Manchester, Liverpool and Sheffield.
Leeds, especially, is at the centre of the UK’s best places to invest in 2021/22. Outside of the North of England, Edinburgh is still a worthwhile investment location although prices are increasing as the economy continues to grow. Glasgow, too, has plenty of potential with the council committing to increase the city centre population by 50% in the next decade.