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Written by: James Needham, Director

Property investment has been a popular investment strategy for decades — and for good reason too. The UK property market has been known for stability and reliable returns, and with Savills stating that house prices are set to rise by 18% by 2028, this reputation is not going anywhere any time soon. With the right advice and technical know-how, property investment can be an extremely financially lucrative way to start or continue your investment journey.

We’ve put together a guide to help you navigate the ever-changing — and ever-profitable — landscape of property investment.

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Property investment guide

An Introduction to Property Investment

If you’ve been contemplating taking a punt at property investment, it can be difficult to know where to start. For starters, property investment comes in all shapes and sizes: there’s buy-to-let, property development, HMOs, buy-to-sell, international property investment— the list goes on. It can be tricky to know where to begin, but that’s why we’re here to help.

The first thing to know is that property investment is anything that involves purchasing, managing, renting or selling real estate properties with the end goal of building wealth or generating income. This makes it a highly varied investment strategy. It’s known as financially lucrative in comparison to other investment vehicles due to its high potential for long-term appreciation, steady income and diversification benefits.

It is also considered a hedge against inflation and market volatility, offering stable and consistent returns as well as potential tax benefits. Essentially, it’s an all-rounder investment strategy that can be extremely profitable when done right.

Getting Started: Becoming a Property Investor

Before you can properly sink your teeth into the real estate market, you’ll need to undergo an in-depth financial assessment, identify and set your investment objectives, and research and decide which property investment strategy works best for you.

Financial Assessment

Before delving into property investment, you’ll need to analyse your finances and gauge which investments you can afford. Take an evaluation of your creditworthiness, savings, outstanding debts and cash flow. Assessing your finances thoroughly will aid you in determining how feasible your investments are and whether they’ll have the capacity to weather market fluctuations. Plus, undergoing a financial assessment at this stage will help you manage your expectations in terms of investment possibilities.

Researching Investment Strategies

Once you’ve figured out your finances, you can begin to assess which type of property investment might suit you best. The best way to begin setting these objectives is to research the different investment opportunities:

  • Buy-to-let: This involves investing in a residential property that you’ll let to tenants. For further information regarding this type of investment opportunity, have a look at our page dedicated to buy-to-let.
  • Property Development: If you’ve always fancied ‘flipping’ a house, property development could be the right path for you. It involves buying a property to renovate and sell on.
  • Investing in Holiday Property: Holiday home investment entails buying a property and letting it out to holidaymakers. It’s a great option if you’re looking to invest in a property you can make a profit from and utilise yourself.
  • Buying a New Build to Sell On: This means buying a brand new property often before it’s been completed by the builder to then sell it on when it’s finished. This can be a great way to make a profit, but these sorts of projects can also end up costing more than originally planned.

There’s also a multitude of indirect ways to invest in property, including the following:

  • Property unit trusts: A type of fund designed specifically for direct investment in real estate.
  • Property open-ended investment companies: A type of fund that offers a professionally managed portfolio of pooled investor funds.
  • Property investment trusts: Companies that own or finance income-producing real estate.
  • Property bonds and loan notes: A loan given to a property developer or property company.
  • Shares in listed property companies: Listed property companies share their profits with shareholders in the form of dividends, therefore buying shares in these companies can be profitable.
  • Property ISAs: You can invest in property ISAs to gain the rewards of property investment without the risk of investing directly into a single property.

Setting Your Investment Objectives

With your research done, you can begin to set your investment objectives. Define clear investment goals and align them with your financial objectives and risk tolerance.

To set these objectives and decide which investment type is worth your time and budget, it could be worth asking yourself the following questions:

  • Are you aiming solely for a passive income stream, or are you looking to manage a portfolio actively like a business?
  • Are you seeking additional side income or substantial returns in the future?
  • Are you looking for immediate gains, or are you willing to wait for significant returns down the line?
  • Are you considering retirement soon?

The answers to these questions can help you to determine which type of property investment strategy works best. Given the complexities of real estate investment, at this stage, we would certainly recommend seeking professional advice for guidance.

How Much You Need To Invest

Property investment can cost a pretty penny, especially when considering the housing market as we know it today. In the UK, house prices usually start at between £200,000 and £300,000 — properties with these price tags require a minimum deposit of at least £50,000, though in the case of Buy-to-let this deposit is often paid in a couple of instalments . This means that even if you’re looking to invest in a cheap house, flip it and sell it, the upfront costs still need to be considered.

However, if you’re strategic when it comes time to pick a mortgage deal, you can cut down on costs considerably. Carefully consider what type of interest rates you’ll be paying, and try to minimise set-up fees wherever possible. There’s also the possibility of securing a deal when paying with cash, depending on the terms available.

Identifying the Best Investment Opportunities

With a broad understanding of the different types of property investment opportunities, and your investment objectives set, you can begin to assess specific investment opportunities and identify which ones are most profitable. Start with thorough market research, followed by property evaluation and finally risk assessment.

Market Research

If you’re new to the property investment game, it can be challenging to recognise which investment opportunities are gold, and which are a waste of time and money. That’s why market research should be your best friend. Analyse local property market trends, supply and demand dynamics, rental vacancy rates, employment growth, infrastructure developments and economic indicators that influence property values. This will give you a good grasp on which investment opportunities to welcome, and which to avoid.

Property Evaluation

After doing your market research, you might have a few properties in mind for investment. Create a pros and cons list for each property, taking note of their location, neighbourhood quality, proximity to amenities, general condition and their potential for generating profit. This will help you weigh up which property is best for your investment, and which fits your criteria.

Risk Assessment

Lastly, one of the most important things to do before investing in a property of any kind is to make sure your property undergoes a thorough risk assessment. This could be the difference between making a bad investment or a good one, and can help you manage your financial expectations if you decide to go ahead with the investment.

Consider the following: market volatility, economic downturns, interest rate fluctuations, tenant turnover, property maintenance costs and regulatory risks — as these could all be factors that negatively impact your returns. Make sure that you consider any risks that could impact you for at least the next 10 years — because with property investment you’re often in it for the long haul. Again, at this stage, it is worth reaching out for independent financial advice.

Maximising Property Investment Returns

So, you’ve picked your property and decided to invest. At this point, you’ll probably be looking for ways to maximise your returns as soon as possible. Depending on the type of investment you make, the speed and size of your returns can be quite varied. Take the following into consideration:

  • Increasing Rental Income: If you’re investing in a buy-to-let or holiday home property, there are a few sure ways to maximise returns. You can set competitive rates, include amenities that will attract higher-paying tenants, and explore short-term rental opportunities such as Airbnb and Vrbo.
  • Enhance Property Value: Consider undertaking property renovations and upgrades that will increase its appeal and value. These improvements can be done cost-effectively and target areas that maximise high investment returns.
  • Tax Optimisation: Take full advantage of tax deductions for expenses such as mortgage interest, property taxes, insurance, maintenance and depreciation. Consult with tax professionals who can advise you on how best to do this and ensure compliance with tax laws.
  • Keep Costs Low: An easy way to improve your profit margin is by keeping down the cost of financial products associated with your investment.

Building Your Property Portfolio

If one property investment isn’t enough for you, you might be considering building a property portfolio. This can be financially lucrative as it can spread the risk over several properties — if one investment is proving to be difficult, another could be highly profitable and cover your back while you sort out the first. To build a property portfolio, you’ll need a strong diversification and growth strategy, clear investment criteria and a variety of financing options.

Diversification Strategy

Building a property portfolio can be a risky business if done incorrectly. As the old phrase goes, don’t put all your eggs in one basket. Diversify your portfolio by investing in different types of properties, exploring an array of geographical locations, and varying your investment strategy to balance income generation, capital appreciation and risk exposure.

Investment Criteria

While diversification is important to building a successful portfolio, it is also important to establish clear investment criteria that each property abides by. Whether it’s a 6-bed student rental in Manchester, or a premium chalet to let in the Alps, your criteria could include factors such as investment return targets, cash flow requirements and risk tolerance levels. This will ensure that each property in your portfolio will require similar levels of investment, management and returns.

Financing Options

While investing in one property can be financially feasible for you, investing in ten might be a bit of a stretch. That’s why if you are planning on building an investment portfolio, you will probably need to explore financing options. There are multiple ways to access capital for property acquisitions — you can consider traditional mortgages, private lenders, seller financing, or partnerships.

Long-Term Success in Property Investment

Real estate markets are dynamic and evolving constantly, and it’s crucial to stay on top of the ever-changing market if you want long-term success in your property investment. Make sure you keep up to date on industry trends, market conditions and regulatory changes so nothing slips through the net.

Equally taking these changing conditions and regulations into account in your risk management strategies is critical for preserving and growing investment portfolios. Be prepared for the unexpected and regularly assess the risks your investments might be affected by. This, alongside flexibility and adaptability when unexpected risks do crop up, will ensure long-term success in your property investment.

At Alesco we’ve been assisting in and managing our clients’ property investments for over 20 years. We help new and seasoned investors start and grow their property portfolio, so they can invest with confidence.

Contact us to find out more or to begin investing today.

Written by: James Needham

Director

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

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