Once you understand the fundamentals of investing, economics, and risk, investing in real estate can be as simple as playing monopoly.
You may think that buying any property in the UK is not the best idea right now.
Real estate is still a stable and reliable investment, whether you are buying a house to live in or buying for construction or rent.
However, suppose you want to become a real estate investor. In that case, you need to know what you are doing, especially when you plan to rent your investment property.
You must be financially sound and, at times, willing to take calculated risks.
Investing in real estate is not for the faint of heart, but our real estate investing guide can help.
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How to invest in property
The term generally does not make much sense, but you need to develop a strategy when investing in real estate.
A common real estate investment strategy is:
- An investment in the form of a purchase
- Real estate development
- Unplanned new construction
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Buy-to-hold investments
Homeowners who went into the “rent-to-own” trend some 20 years ago will have a successful investment.
Despite stricter rental property laws and growing landlord laws, home buying remains a popular and profitable investment strategy and legacy for 20 years.
Why? Because you benefit from rental income and property value growth.
Although house prices in many parts of the UK have stabilized and the UK is awaiting the fate of Brexit, home buying is still out of reach for many. Therefore, there is still a high demand for rental properties across the country.
However, before deciding to pursue an investment before you buy, consider whether becoming a homeowner is right for you.
The rights you have to deal with include Minimum Energy Efficiency Standards (MEES), leasing rules, and many other health and safety regulations.
You also need to understand your financial situation. Significant property taxes are gradually being introduced, not to mention stamp duty and property running costs.
However, if done right, “rent-to-own” can provide the owner with additional income or alternative income. Long-term tenants can also get profitable capital growth on their investments.
Property development
We recognized that “leasing” can be a great long-term investment strategy. However, if your goal is short-term, you may want to consider real estate development.
Real estate development means finding a home that requires a job and a home that can add value to it before it has to (hopefully) be sold.
It sounds simple, but like “buy to sell,” there are many things to consider.
Property development is highly dependent on speed and market conditions. The more time you spend organizing your home, the more likely it will be affected by market changes.
The costs will increase over a long period, and all of this will consume your profits. The number of houses that often require work will increase dramatically.
As with buying a rental home, when building a property, you also need to be financially sound and be prepared for annoying surprises that can delay renovation work or cost you more than you bargained for.
However, if you manage your property well, buy it cheap, renovate it cheaply, and sell it quickly, you can make big profits in no time.
Buying new-builds off plan
If you feel brave, but the work and energy it takes to buy a home and develop a property do not appeal to you, you can try investing.
Here you can buy a newly built unplanned home in the early stages of development and sell it at a profit after the work is complete.
Of course, it is not that simple. If the market crashes, you may be forced to sell it at a lower price or even impossible to sell if you get a high mortgage.
Investors who adopt this strategy can only operate in markets with high capital growth and increased demand from buyers.
There is also the risk that the developer will stop development work or face financial hardships during the development process. The risks are obvious, but flipping homes can pay off without any effort when the time is right.
Stages to property investment
Regardless of the investment strategy you choose, there are many steps and processes that you must follow before you can start trading. Each stage will provide you with some feedback.
Get your finances in order
Build your capital. No matter what strategy you adopt, you can invest more money and make more profit. If you need a loan, calculate the amount and provide an estimated cost. The key to success is a clear budget and a few unpleasant surprises.
Property research
Your success as a real estate investor depends mainly on investing in the right property at the right price.
You must consider the target market of the tenant or buyer in the UK right now.
For example, if you want to provide an apartment for young professional tenants, is it close enough to the transit station?
Research mortgages
Getting a fair mortgage contract can affect your bottom line. If you follow a buy-sell approach, the mortgage will eat up your rental income.
Starting in April 2020, homeowners can only request a 20% income tax reduction on their mortgage interest, so choosing the right mortgage is especially important.
Contact an independent broker or financial advisor before applying for investment property financing.
Make the right offer
Whether you are buying an investment property or a residential home, getting the right valuation is always key.
However, this is especially important for investors, as it will directly affect your earnings in the short and long term.
Solicitors and conveyancers
More research is needed here. As an investor, you can find an attorney with experience making investment purchases to pay off. After all, the earlier you complete your purchase, the greater your profit growth.
Get a survey done
Earlier, we mentioned unpleasant surprises that can be costly regardless of your investment strategy.
It is always a good idea to do a full investigation, especially during the development stage, to limit unexpected situations that could result in paying large sums of money.
Conclusion
Consider investing in real estate in the UK through a particular type of legal entity such as a limited liability company rather than on your behalf to manage your risks and protect yourself. You should consult a qualified attorney about which method of ownership is best for you and your situation.
If this article has picked your interest in real estate investing, check out the factors that make “Leeds” a hotspot for property investment!
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.
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