Top 10 tips on investing in property

Kate Berrisford
August 7, 2022

If you're looking for the top 10 tips on investing in property in the UK, then we've put together this comprehensive guide to property investment.

Whether you're interested in becoming a property investor, or you're an experienced investor wanting to increase your property portfolio of investment properties, these tips will help you think about how to minimise risks and maximise your return on investment.

Investing in real estate is a popular UK investment strategy, in addition to stocks, shares and bonds. However, before you start investing, it's important to have a thorough understanding of what property investment is all about. That includes how to create an investment strategy, how to minimise risks and how to choose the best investment options to suit your needs and budget.

Investing in property can provide good return on investment through rental yields and capital growth. But, there's also a lot that can go wrong if your investment is not planned correctly. For example, having gaps in tenancy and not being able to meet your mortgage payments each month, could leave you vulnerable to having your assets seized by the bank.

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Property investment 101: an introduction

Property investment is a strategy that involves the buying of a property to make a profit from it. This profit is often referred to as a return on investment.

The profit can be twofold - you can make money from rental income by letting the property out to tenants. And you can make capital growth (also referred to as a capital gain) by selling the property for more than you bought it for. 

There are various types of properties that you can invest in. These include detached homes, terraced houses, bungalows, flats, land, farms, commercial offices, and even industrial premises like factories.

Anyone buying and selling properties, or renting them out, is referred to as a property investor. You can be a single investor trading in your personal capacity or through a company - or you can purchase properties together with other investors.

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How can I get started in property investing in the UK?

It's easy to get started in property investing in the UK, as long as you have some access to funds to make a purchase. But the art to successful property investing lies in knowing when to buy, where to buy, what price to pay, and having a clear long-term plan to make a good return on investment.

A good starting point is to do some general research on the property market in the UK. Find out what investment strategies other people use. Look at current property market trends and the reasons why people get involved in property investing. And consider your financial plans and diversification of your investment portfolio.

Figure out your budget and consider your ideal tenants (if you plan to rent the property). Consider the different types of properties and which one you're interested in. Calculate your expected return on investment, your mortgage rate and repayments and your cash flow. Also think about the risks and responsibilities of being a property owner.

In other words, it's imperative to do lots of research and due diligence before diving in so that you make informed decisions.

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Top 10 tips for property investing in the UK

Below we look at 10 of the most important tips for investing in property in the UK.

1. Know your budget

Investing in property is usually a costly activity. That means that there's big financial risk if your investment fails to perform how you expected it would. That's why it's critical to make an investment budget that is realistic, informed by data and expert advice and that you have a good accountant to help you with the figures.

Drafting a budget includes estimating all the costs that you may incur, as well as your expected returns and profits. You may need some expert guidance on what costs to expect.

These costs can include the price of the property, the mortgage deposit and repayment (if relevant), lawyers fees, conveyancing fees, stamp duty, maintenance fees, capital gains tax, insurance, costs for someone to manage your property, letting agent fees, utility bills, accounting fees etc.

It's prudent to also add a line item to your budget for contingency fees, just to give yourself a little buffer for unexpected costs.

Then you'll also need to calculate your expected profit. If you're planning to rent out the property, you'll need to calculate the expected rental yield. And if you plan to sell, you'll need to work out your ROI.

Once you've drafted a budget it will become clearer what property price you can afford, what mortgage you are likely to be able to get, and what your monthly cash flow will look like. This can help you plan and make more informed decisions about where to buy and what types of property to start looking for.

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2. Do your research

Making the best decision when it comes to buying property can have far reaching consequences. That's why it's important to do thorough research before you make your purchase.

Some of the things that you should research before buying a property include:

  • Current market trends and property news;
  • Investment risks;
  • The costs and legal liabilities involved in owning and managing a property;
  • Legal compliance requirements related to the property you plan to buy;
  • Sales price comparisons in the area;
  • The history of the property, previous owners and any environmental or planning related aspects that may affect the property;
  • The type of tenants that you're likely to find in the area you're interested in (if relevant);
  • Any plans for regeneration in the area, nearby schools, and nearby social and outdoors activities;
  • What mortgage deals are available, and whether you're eligible;
  • Whether to buy the property in your personal name or create a property investment trust or property investment company to purchase the property through.

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3. Be aware of the risks

It's imperative to realise all of the potential risks associated with buying property, so that you can avoid bad investments. And it can help you formulate plans to minimise those risks.

Here are some of the risks to look out for:

  • Undesirable tenants

If you plan to invest in a buy-to-let property, then undesirable tenants may be your worst nightmare. These tenants may put your cash flow under strain by paying their rent late (or even worse, not at all).

Bad tenants can also destroy your property either through neglect or through willful destruction. That can cost you lots of money in repairs and maintenance.

Tenants can also cause a nuisance to neighbouring properties which might require you to get involved in legal disputes.

  • Property market crash

The average property prices in the UK have shown increasing growth over the last 20 years, which has given positive return on investment to many buyers.

However, with the looming recession, there's been talk of a property market crash. While most experts predict that there won't be a crash, they do think there will be less growth in average house values.

The risk of a property market crash at some point in future can't be ignored.

  • Poor return on investment

If you pay too much for a property, or if average house values drop significantly, you may end up selling your investment for less than what it cost to buy.

Effectively you'd be making a capital loss. This would amount to a poor return on investment.

The risk of a poor investment can be minimised by choosing the best area to invest in carefully, and by doing property due diligence and planning.

  • Low rental yields and lower demand for rentals

There's also the risk that the buy-to-let property you purchase may not get the rental yields you were expecting. That means you'll have a lower monthly income from which to pay all your costs, which can affect your budget and cash flow.

Or find that there is less demand for rentals in the area in which you purchased, which could make it harder to find ideal tenants.

  • Climate risks

As climate change impacts are increasingly being experienced around the world, certain areas are predicted to be more affected than others. It's important to factor climate change risks into your buying investment plan.

You can do this by researching reports on areas across the UK based on sea level rise and the risk of flooding. And by looking at which areas are expected to be exposed to drought, water shortages, severe storms and extreme heat - just as examples. 

This will be increasingly relevant if you intend to retain ownership for several years or more.

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  • Environmental risks and hazards

Purchasing any property carries the risk of environmental hazards. It's important to conduct an environmental assessment to uncover any potential risks, so you can decide on whether you can manage those risks affordably.

For example, radon gas occurs naturally around the UK and is a leading cause of lung cancer. You can test for radon gas in the home and there are solution measures you can put in place to mitigate these risks. 

Another example is Japanese Knotweed, which is an invasive species of plant that is quite prolific across the UK. It can cause damage to house foundations and may even constitute a nuisance to neighbouring properties. Purchasing a property without checking for the existence of this plant, could have costly repercussions.

Similarly, there may be risks of subsidence, land slippage, land contamination, asbestos etc. which could cause harm to a property and any tenants.

  • Problems with cash flow

Problems with cash flow can affect any business.

In the property sector there are often large sums of money involved and ensuring sufficient funds and contingency funds are available to meet all the monthly costs is important.

There are various ways in which cash flow in property can be affected. If you're letting your property, you could get tenants who don't pay or who won't move out. You could also get tenants who cause damage to your property that needs to be repaired. And you may have gaps between tenants when you have no rental income.

And even if you have great tenants, there can still be costs for maintenance and repairs that may be larger than expected. Or you could be fined for nuisance or other disturbances caused by your property.

  • Unaffordable mortgage rates and repayments

We're currently experiencing some of the highest interest rates on record. For anyone that doesn't have a fixed rate mortgage, this can mean an increase in monthly mortgage payments.

There are lots of other circumstances in which mortgage payments become unaffordable. For example, if you over-estimated the rental yield, you may not have enough profit each month with which to make your repayments. Or if you struggle to find new tenants and have big gaps in tenancy, where there's no income, it could be challenging to meet your mortgage repayments.

And even if you're not renting your property, you may still struggle with mortgage interest payments. For example, you may have miscalculated your expenses and find that there is more that you owe each month than predicted. Or if you were financing the mortgage with your salary, and that gets interrupted, that can change your ability to pay off your mortgage.

  • Changing demand from tenants or buyers

Certain areas go through changes from time to time. Even a highly desirable location can be converted into a much less desirable area, which can affect demand from tenants and buyers. That can disrupt your plans to sell the property for a particular price, or to find suitable tenants.

The likelihood of property price fluctuations is quite low in the UK at present, especially if you've chosen a good area to invest in.

  • Planning and development

There are many planning laws that apply to properties. Having a good knowledge of these is important, as they can affect your property and your ability to manage it, rent it and sell it.

For example, many properties will have a servitude or right of way registered against their title deeds. This may affect your ability to subdivide a property or to fence off certain areas.

And if there are plans for development nearby, that can also affect the ability to find tenants and sell your property. For example, if a nuclear power plant were constructed near your property, that may affect its value.

It's important to look out for any possible planning and development risks, whether current or proposed, that may make it less desirable in the long term.

  • Electrical and structural risks

Any property you buy should be checked for electrical compliance to avoid the risks of fire or electrocution.

Any construction also carries with it structural risks and it's also wise to check that the building and foundations are safe and secure before you purchase.

But structural risks can change over time and can be impacted by forces like land slippage and subsidence. In these cases, it can be costly to reinforce, repair or rebuild homes to ensure structural integrity and safety.

  • Capital gains tax implications

When you buy a property and then later sell it, the profit you make is subject to tax. If you own the property in your personal capacity, then you get a capital gains allowance when you sell. But if you own the property in a company name or special purpose vehicle (SPV), then you don't get the same allowance. 

Knowing the legal and tax implications of the different forms of property ownership is also critical, so that you avoid unexpected consequences.

  1. Create a property investment strategy

It's a good idea to consider various different property investment strategies so that you can find one that suits your personal circumstances and needs.

Here are some popular investment strategies:

  • Buy to let: This is where the property owners rents a property to tenants.
  • Rent to Rent: This is where a tenant rents a property under an agreement that they can sublet the property to tenants.
  • Buy to sell: This is where you buy a property to sell it and make a profit. When this is done with a quick turnaround, it's often referred to as "flipping" a property.

The difference between residential vs commercial property investment

Many people just think of residential property when it comes to investments in property. But commercial property investments can also be an option.

Commercial properties include retail shop spaces, offices, and industrial premises.

There are many differences when it comes to investing in commercial vs residential property.

For example, stamp duty can be lower for commercial properties (depending on the price). Landlords of commercial rental properties usually charge rent for these premises 3 months in advance (compared with residential rents which are paid monthly). But mortgages are usually easier to find for residential properties.

How to create an investment strategy

There are many alternative ways people invest in property.

When you're creating an investment strategy, it's best to look at all the different options and then start making a shortlist based on the pros and cons for each. This should be informed by your budget, preferences, experience and skills.

Once you've narrowed down the type of investment that suits you, you'll need to start drafting a budget and making a list of all the costs and expected incomes. It's important to identify risks and make plans to minimise these. And of course, you should get advice from professionals and experts to fact check your strategy and ensure it's robust, effective and realistic.

5. Find the right location

Location! Location! Location!

This is the oft cited mantra by those in the property profession.

Finding the right location and best area to invest takes careful research and planning. You will want to find properties that offer high rental yields (if you plan to buy-to-let) and good capital growth potential (if you plan to sell).

In addition to rental yields and potential growth, you'll also want to find a property that is for sale at the right price in the location you're looking at.

Many buy to let investors look for rental hotspots, where there's plenty of tenant demand and therefore tenants to fill your rental. Others may look for areas predicted to have high capital growth in areas that are currently undervalued.

You'll need to consider if you'll maintain the property yourself or hire an agent to do it - and whether you need the property to be close to where you live.

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  • How to identify the right location

Depending on the type of property you want to buy, and whether you want to rent it out or not - you'll probably be looking at different locations. That's why it's important to have an investment strategy, so you can plan to find the best area for the property investment of your choice.

We created a guide on how to find the best buy-to-let area that contains some useful tips and advice.

You can rely on property sourcing agents to help you find the best area (for a fee), you can manually search yourself or you can use the power of AI and big data to reveal insights that can help you choose the best investment area.

  • Tools to help you identify the best investment location

Proptech tools like Pivro use AI and big data from multiple sources across the UK, to provide you with a user-friendly property software that's been specifically created for developers and investors.

It allows users to search for properties in any area of the UK by best return on investment. And you can apply a range of powerful filters to unlock data that matters most to you.

Whether you're looking for a specific type of property (e.g. HMOs), a specific price range, homes near schools, or you want to find price comparisons in an area - Pivro can provide this and more.

This helps you to find the best location while also doing due diligence - all from the comfort of your laptop. It can save you time and money on manually searching or paying for expert sourcing advice.

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6. Know your prospective tenants

If you create an idea of your ideal tenant, then that can help you to buy a property that will attract that sort of tenant.

For example, if you want to rent to young professionals, then you may want to find areas where young professionals like to rent and live. To make your property attractive to this tenant group, you may want to find properties that are near cities with good employment opportunities, close to transport hubs, and that have modern finishes. 

Or if you want to rent to families, you might choose a location near a good school. And if you're thinking of buying student accommodation, you'll probably want to find an investment close to a university or college. You may also want to make it student-friendly by installing fast Wi-Fi, providing washing machines, tumble driers and basic appliances and by choosing properties with communal areas where students can socialise.

It's not enough to just assume that you'll find the right tenants. If you're not aware of trends and the type of people that rent in the area you're looking at, you may be in for a surprise.

It's also important to screen any prospective tenants to minimise the chances of getting tenants that don't pay or won't look after your investment. This includes getting an employment record, checking their credit history, and getting references from previous landlords.

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7. Find the best mortgage

When you start planning an investment in property, it's vital to figure out how you plan to pay for it. If you don't have the cash to buy it outright, you may need to consider a mortgage.

If you're planning to rent your property, then you may want to look for the best buy to let mortgage deals. You can do your own research to source mortgages, or you can consult a professional and registered mortgage broker.

You'll need to consider what deposit is required, what the costs associated with the mortgage are, and if you meet the lender's eligibility requirements. Also think about the monthly repayments and how that will affect your cash flow. And consider what deposit amount you should put down, to make your monthly payments manageable.

How to find the best mortgage

We've put together a comprehensive guide on how to find the best buy-to-let mortgage.

If you're looking for other types of mortgages, you'll need to start by checking your eligibility, looking at various lenders and comparing their deals, and looking at all the costs involved in any mortgage (not just the rates).

You can compare mortgages using useful online mortgage comparison tools, and you can also consult mortgage advisors to get expert advice.

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8. Decide on the property type

Do you know what type of property to invest in? A detached home, a student flat, HMO, retirement apartment?

Have you considered the differences between residential vs commercial property?

Will you buy a new build, will you buy a property off-plan, or will you refurbish the property yourself?

It's important to consider the answers to all of these questions as part of your personalised investment strategy.

9. Decide on how you’ll manage your property

It's also wise to consider how you plan to manage your property once you've bought it.

Do you want to be a hands-on landlord, or do you want to hire an agency to manage your lettings for you?

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Managing a property involves sourcing and screening new prospective tenants, managing all payments, dealing responsively with any issues that arise from time to time, and overseeing any maintenance and repairs.

If you think you won't have the capacity to do that yourself, you may want to hire a property management consultancy or rental agent to do that on your behalf.

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10. Speak to experts

Part of doing thorough research into any investment, should include speaking to experts. In the property sector, there are many experts that could provide you with invaluable tips, bits of advice and cautions.

It's even more important if you're a first-time buyer to get this type of advice.

Below is a list of experts that you may want to consult and the type of advice and information that they may be able to provide:

  • Estate agents

Local estate agents can often give you insights into the area, proposed developments, whether any regeneration projects are planned, what the history of a particular property is, the average house prices and rentals in an area, and the type of tenants you're likely to find.

Estate agents will also be helpful in your search for the perfect property, depending on your budget and needs.

  • Developers

Property developers may also be a source of expert advice. They can tell you about their experiences in certain areas, and what types of properties sell best, what type of properties appeal to a particular target market and where some of the hottest deals are to be found.

You may be able to network with local developers at property events, forums and seminars.

  • Industry associations

There are a range of property investing associations in the UK. Some organise meetings and events to discuss topical issues and provide advice and access to services. Others curate developments for developers to invest in.

Industry associations offer a range of opportunities to network with and learn from experts in the trade, which can help provide you with guidance and knowledge to make a successful start to your investment career.

Tip: Beware of investment clubs and deals that seem too good to be true, or networks that charge a lot to join.

  • Property Investors

Just as developers can give you unique insights into the property market, so too can investors. They can give you feedback about real experiences and may be willing to share tips and advice that can be invaluable.

  • Property sourcing agents

Property sourcing agents may have specialised knowledge about particular types of properties (e.g. HMOs) and particular areas.

They may also be able to help you find the ideal property to suit your needs, although there's usually a fee attached to that service.

  • Mortgage brokers

Mortgage brokers or advisors can help you to find the best mortgage deals. They can also give you advice on different lenders, explain the costs and implications of different mortgage deals and can give advice on eligibility and what deposit will be required.

You should bear in mind, however, that not all mortgage brokers are 'all of market', which means that they may only show you a small selection of mortgages from the lenders that they work with.

Investment property FAQs

What are real estate investment trusts?

Real estate investment trusts (REITs) are a form of property ownership. The trust derives income and profits from investing in property and then distributes the money to investors.

REITs can be used to buy residential, commercial or industrial property. They don't usually have to pay corporation tax on rental income profits or on the sale of rental properties. That makes them particularly attractive from a tax perspective.

Private individuals and companies can invest in REITs and passively earn money when the REITs make a profit. That means you don't actively need to take part in managing the property and you can also invest a small amount or a large amount, depending on your needs and circumstances.

What Is a Property Investment Company? 

There are two types of property investment companies. One is an organisation that provides buyers with advisory services. The other is a form of ownership that a buyer may use instead of purchasing in their personal capacity.

In the UK there are a variety of property investment companies that can assist prospective buyers and investors with advice. They typically have close connections with property developers and other investors and can help find you related opportunities. Some may charge fees, and others receive commission from the developers when buyers purchase their properties.

Many people in the UK opt to set up a company before buying a property. There can be tax, inheritance and mortgage benefits associated with doing this which are often the motivating factors for choosing this form of ownership.

Our guide to getting a buy-to-let mortgage for a limited company provides some of the pros and cons of this type of ownership.

Final thoughts on property investing in the UK

There is more to being a property investor than meets the eye. Choosing the right investment property requires dedicated research, budgeting, assessment of risks, finding the right location, negotiating with prospective tenants and a lot of good management and administration.

Despite the risks, real estate investing can be a lucrative way to use your money - whether through a rental property, a property development, or other investment strategies.

Hopefully this guide to property investing in the UK will have provided you with some useful tips on how to get started with developing your own property investment strategy.

Contact Pivro

To learn more, contact Pivro and speak with a marketing automation for property professionals expert who can answer any questions you might have.

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DISCLAIMER: Please do not consider this tax, financial, mortgage or legal advice. We’re simply sharing general information, and we highly recommend you speak to a registered and qualified professional about your individual circumstances before making any decision based on the information provided on this website.

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