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Written by: James Needham, Director

Do you dream of owning more than one home? Are you an investor seeking a hassle-free way to get into property investment? If this has been something that you have been considering for a while, look no further.

Here at Alesco, our leading specialist property investment experts have crafted a comprehensive step-by-step guide on how to become a property investor, the advantages of real estate investment, and how to make informed decisions. Let’s explore.

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How To Become A Property Investor

Why Consider Property Investment?

The UK property market has a long and established history of rewarding investors. As a result, property investment has become one of the most popular strategies in the UK for investors who are looking to increase their wealth, generate a steady stream of income and gain a sense of stability to their portfolio.

These are just a few of the benefits you can expect with property investment. To learn more about how you can secure your future and become a property investor in the UK, check out our guide here.

Building the Foundation for Success

With so much information online, how do you become a real estate investor?

Well, the first step for any investor is research. If you are new to buy-to-let, you will need to learn and understand how the market operates. Equally, if you are an existing investor, you may need to start researching new markets and consider the ways you can diversify your portfolio.

In addition to thorough research, determining your investment goals is one of the most crucial steps when getting into property investment. While everyone has different financial goals, capital appreciation and long-term yield are the two most important components to prioritise.

If the aim of your investment is to generate regular income to replace or supplement your other sources, Consider the long-term yield. Alternatively, if you are looking for a property that can rise in significant value and give you substantial returns, then you should focus on capital growth.

Property investment can be done in a multitude of ways. Whether you are buying a new home, a commercial property or putting money into a property investment fund, it’s worth taking your time to explore and research your potential options, decide your preferred location, and choose which type of property investment suits you.

Here are the different types of property investment you could go for:

Traditional Buy-to-Let

The most common type of property investment is traditional buy-to-let, where you purchase a residential property to generate rental income by leasing it to tenants. This is typically a medium-to-long term investment and almost all kinds of residential real estate can be used as buy-to-let.

Buy-to-let properties boast numerous advantages, including consistent income streams and long-term capital appreciation. Furthermore, they are tangible assets that can serve as a hedge against inflation. However, it should be noted that the property market can be volatile, meaning rental income and property value can fluctuate.

HMOs (Houses in Multiple Occupation)

HMOs investment consists of purchasing a home with multiple rooms in it and renting each room to a separate tenant. HMOs can be entire houses or flats that are subdivided. This type of property investment is typically associated with student accommodation but can be used with any tenants, as long as there are over three (non-related) people.

In comparison to traditional rentals, HMOs offer a higher yield of rental income as there are multiple tenants. Even if some rooms are vacant, you will still have a consistent flow of generated income from the other rooms. However, HMO properties are subject to specific regulations, which can be more complex than those for regular rentals.

Off-Plan or ‘Property Flips’

Off-plan or ‘flipping a house’, refers to the process of buying a property before it is fully constructable or habitable, with the intention of renovating it and selling it for a profit. This has become an increasingly popular investment strategy for those looking to pay less for their investment, with some properties even falling below-market prices.

It’s safe to say that flips are one of the fastest ways to make a profit from a property, but they are also one of the riskiest investment strategies in this category due to market uncertainty and development risks. Take a look at our page if you would like to learn more about this strategy or about some of the other types of property investment.

Alternative Investment Methods

There are additional ways to put your foot in the door in the real estate market. If you are a new investor who prefers to avoid the hassles of being a landlord or even spread your risk across multiple properties, a real estate investment trust (REIT) may interest you.

REITs are property investment companies that allow investors to access a broader range of real estate and invest in large-scale, income-producing residential and commercial properties. The appeal of UK REITs continues to grow and it’s not hard to see why! REITs are a great option for property investors because they require a much smaller investment, are known for offering regular dividend payouts and steady returns, and can be a great way to diversify your portfolio. However, it’s important to keep in mind that with market volatility and high interest rates, investing in an REIT can have its downsides — particularly a lack of overall control over your investment.

Financing Your Investment Journey

Once you’ve decided the type of property investment you’ll be pursuing, the next step is to work out the costs you expect to incur, the projected revenue, and how you are going to finance your investment plans.

Most properties require a mortgage to purchase. With a range of mortgages on offer, it is worth conducting research to understand what they offer and whether they are a suitable choice for your investment. The most common mortgage options include:

  • Buy-to-Let Mortgages: Designed for individuals looking to buy a property to rent to tenants, rather than living in it. Most BTL mortgages are interest-only, meaning monthly repayments will only pay off the interest, not the capital. This will usually be paid off in full at the end of an agreed term.
  • Buy-to-Sell Mortgages: This is a great choice if you are looking for a short-term financing option to purchase a property, renovate or improve it, and then sell it for a higher profit. BTS mortgages are ideal for investors looking to flip houses and property developers who need short-term funds to complete construction projects before selling.

When buying a new property, you will also need to consider loan-to-value (LTV). LTV is the ratio of the value of the home you want to buy and the loan you’ll need to buy it. If you have a lower LTV ratio, this is often seen as a lower risk by mortgage lenders and so you may be offered lower interest rates and have more equity in your homes.

Starting Small & Building Your Portfolio

Starting small and taking your time is crucial when building your portfolio. The beauty of real estate investment is that there are multiple options for various financial situations. So, if you’re wondering: ‘Can I invest with limited capital?’. The answer is yes, you can.

As mentioned earlier, you can invest in a diversified portfolio of real estate with a smaller amount of money through REITs and sell your stocks within minutes on stock exchange platforms. Alternatively, if you would like more control over what you are investing in, real estate investment groups (REIGs) may be the answer. 

While REITs and REIGs share similarities and are ultimately both a case of investing in real estate assets, REIGs mostly develop their own properties or buy stakes in existing properties and ongoing real estate projects. REIGs will usually operate as partnerships with private shareholders, allowing investors to participate in investment decisions and activities. They can also be a great way to invest in not only real estate but also other industries, further diversifying your portfolio. However, most REIGs require large capital amounts and can have limited liquidity.

It’s important to remember that building a successful portfolio is a marathon, not a sprint. It can take time, discipline, and continuous learning. For that reason, here are a few strategies to remember when starting and try to scale up:

  • Explore different property types: Gain experience and diversify your portfolio by venturing into different property types (single-family homes, hotels, student housing) as you gain knowledge and capital.
  • Increase property value: Minor renovations or cosmetic upgrades can increase both the rental income and value of your property, boosting your overall return. Moreover, most properties that require more work will be sold at a discounted rate.
  • Leverage strategically: To upscale efficiently and quickly, you’ll need access to the best finance solutions. Harnessing the right type of finance can allow you to grow in ways that would be impossible if you relied solely on your own finances.
  • Consider property management: Working with a property management service can help ease your worries and provide you with guidance on how to get immediate returns, high rental yields, or strong capital growth. At Alesco, our top priority is to ensure property investors can invest their money with confidence and help you maximise your returns.

One of the most vital legal considerations for property investors is the tax implications of owning and renting a property. Understanding how your taxes impact your rental income is crucial — and this includes income tax and potential capital gains tax. 

The good news is that various deductions and allowances can significantly reduce your tax burden. For instance, you might be able to deduct mortgage interest, repairs, and maintenance costs, therefore lowering your taxable income. You may also need to pay stamp duty if you are purchasing a property over £250,000. If you would like to calculate how much you need to pay, check our stamp duty calculator.

Furthermore, as a property owner, you must follow the government’s guidelines and ensure your property meets all safety and health regulations, carry out regular rent checks on tenants, and obtain appropriate insurance coverage for your property, including landlord, building, and public liability insurance.

Management & Maintenance

Building a successful portfolio requires striking a balance between keeping your properties in top shape and fostering happy tenants. There are a few key priorities you will need to juggle such as:

  • Finding Tenants: Attracting high-quality tenants through effective advertisement, screening, and streamlined tenant onboarding processes is a must. Remember happy tenants are more likely to renew their lease agreements and take care of the property.
  • Rent Collection: Developing a system for collecting rent on time, which may involve online portals, automatic deductions, or clear late fee policies, will ensure a steady income flow.
  • Maintenance & Upkeep: Prioritising regular maintenance and addressing any repairs in the property will help avoid any problems. Always respond to tenant requests promptly, and ensure the property remains habitable and code-compliant. This might also involve budgeting for regular maintenance and potential emergencies.

Working with us

Feeling inspired? Well, we hope that our step-by-step guide on how to become a property investor has been helpful. At Alesco, we are committed to helping you find the right property and help new and seasoned investors start and grow their property portfolio. Contact us to find out more or begin investing today.

Written by: James Needham

Director

Experienced Team Lead with a demonstrated history of working in the real estate industry.

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