A Beginner’s Guide To Investing In Property

Property investment is a great way to build wealth over time. If you are looking to generate income through property rental, grow your own capital through appreciation over time, or diversify your investment portfolio, property investment can offer you both short-term and long-term rewards. It can be daunting to enter the world of property investment, with so many different strategies, financial considerations and legal responsibilities, but our guide is here to walk you through the basics in clear and simple terms. We will look at some different property investment strategies, how to finance your first investment, and common mistakes you should avoid.

Table of Contents

What is Property Investment?
Different Property Investment Strategies
How Will You Finance Your Investment?
Finding The Right Investment Property
Common Property Investment Mistakes

What is Property Investment?

Property investment is the act of buying a property to achieve a positive financial return, or profit. You can make a profit from property investment through rental income, reselling the property in the future, or both. Some property investors specialise in buying properties to rent out to tenants, whereas others prefer to buy property at a low price and then sell it for a profit after renovation. You can invest in residential property, i.e. homes, commercial, i.e. for shops, industrial, i.e. warehousing or factories, or even vacant land.

Different Property Investment Strategies

Buy-to-Let

Buy-to-let is a common property investment strategy, especially for beginners. It involves buying a property to rent out for a profit, usually using a buy-to-let mortgage, which allows you to only pay off the interest each month. The principal loan is paid off at a later date, usually when the property is sold. This offers the investor the chance to earn short-term profits through renting the property and long-term capital growth by selling for a profit.

House Flipping

House flipping is an investment strategy that pays off in the long term and generally requires more upfront capital and time than buy-to-let. House flipping involves buying a property, often at below market value, and then renovating it and selling it for a profit. A suitable house flipping property can be hard to find, as you need a property that is currently on sale for a comparatively low price, and also have the capital needed for renovations.

Rent-to-Rent

Rent-to-rent is a strategy whereby an investor rents out a property from another landlord and then rents it to a third party for more money, keeping the profits. This enables you to get into property investment without actually owning a property and thus avoiding the need for a large deposit or a mortgage. Rent-to-rent is common from HMOs or commercial spaces that are then split into smaller retail or office units.

REITs (Real Estate Investment Trusts)

You can get into property investment by buying shares in a REIT, or real estate investment trust. They tend to buy larger properties like blocks of flats using money from multiple investors. This could be a good investment option for beginners as it requires less money upfront than other strategies and is very hands-off, as all the buying and property management is handled by the REIT company.

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How Will You Finance Your Investment?

You will need at least a little money to get started in property investment, whether that’s your own money, that of a business partner, or a loan from a bank in the form of a mortgage.

Buy-to-let mortgages are very common and are often the first step into property investment for beginners. Buy-to-let mortgages often demand a larger deposit and higher interest rates, but allow the borrower to only pay back the interest on the mortgage for a set period. Most mortgage lenders will offer buy-to-let mortgages – shop around for the best deals or use a fee-free mortgage broker.

Savings and inheritance can be used to get started in property investment, although it’s a little more risky, as you could end up losing quite a lot of your own money. You should also be aware of the tax obligations that come with inherited money and assets – consult with a financial adviser or accountant for advice on your specific situation.

Starting a joint venture with one or more business partners can be a good way of financing property investment, as it spreads the cost and risk between you and at least one other party. You also have to split the profits, so it can be less profitable than going it alone.

The choice between these different investment options really depends on your own personal circumstances, financial situation, past experience and appetite for risk.

Finding The Right Investment Property

Knowing what kind of property is suitable for investment is an art, honed by experience and research. Taking the time to do a thought exploration of the area you plan on investing in will help you to identify the best (and worst) locations for property investment, taking into consideration the local amenities and nearby developments, transport links, local schools and the demand for rental properties in the area. You can use online tools like Rightmove and Zoopla to get an idea of the kinds of property that do well in the area, explore market trends, and find out the average rental yield. Networking with other property investors, local estate agents, and others in the property industry can help you to make valuable connections and find out about ideal investment properties before anyone else, so it’s worth doing.

Common Property Investment Mistakes

There are a few common pitfalls that you should look out for in property investment. A big one is overestimating the ROI of a property or underestimating the costs involved. Remember to factor in all costs when calculating potential profits, such as maintenance, fees, insurance and potential void periods where a property has no tenants. It’s also easy to fall in love with a property when looking for a suitable investment and go over budget, but keep a cool head and remember that you aren’t shopping for your dream home; it’s an investment property that you are going to sell one day. Some property investors also forget their legal obligations, especially when renting to tenants. It’s always advisable to look into the rights and responsibilities of both tenants and landlords, keep up with regular property maintenance, make sure all safety certificates are up to date and keep up good communication with all tenants. You should also have an exit strategy in mind for all investments – play the long game and wait for favourable market conditions before selling.

Learn more about how to get into property investment from our team of experts at one of Assets For Life’s FREE property events – click the link below to find out more or book your place today.