There are many ways to create a successful and profitable portfolio when you are investing in property in the UK, but the core of all strategies is to be organised and have a clear idea of what you are looking to achieve. To do this, there are several factors that all investors should consider before buying a property.
Here are our 5 steps to succeed in UK property investment in 2021…
Know your investment objectives
The first and most important step is to set out what you are trying to achieve by investing. By doing this, you will have clear goals and a better chance of building a successful portfolio.
Property investment has two inherent income streams: capital appreciation and rental income. The former is the amount the value of your property increases over the initial purchase price, and generally is seen as a shorter-term profit. This is particularly the case if you purchase off-plan from the developer at a below-market price.
The latter is the amount your tenant pays in rent every month and is generally expressed as an annual percentage of the initial purchase price, following the deduction of costs such as property management and maintenance. This income will naturally accumulate over time and represents a long-term income for the investor – particularly in areas where rents are increasing year-on-year.
On the other hand, there are certain markets which could help you achieve both of those outcomes. For example, the luxury city centre market in places like Manchester has successfully combined rapidly increasing hour prices with strong, predictable growth in average rents. By purchasing a property in a market like that, you may be able to get the best of both worlds.
Our recommendation is to invest for the long-term as the benefits of property investment in the UK multiply over time. The future potential and proven stability of the market is the reason that investors from around the world continue to put their money into UK property, and why demand continues to increase year-on-year.
If you need advice on what type of investment would suit your personal objectives, get in touch with our team of expert advisers today for information and assistance >>
The right location is the difference between a good and a bad investment
When looking for a property, you should take your time to find the right location in order to maximise your investment. There are two related factors that we would recommend considering.
The first is to locate a market where the population, and therefore tenant demand, is growing, or is projected to grow rapidly in the near future. The more tenants there are looking for a home, the more competition there is for the best properties and the more rents will increase. This is especially true in luxury city centre markets like Manchester where properties cannot be built fast enough to keep up with population growth.
The second consideration when looking for the ideal location is to look at the local economy. Where business is booming, people will follow looking for high quality job opportunities, increasing wages and a superior lifestyle. Good indicators of a growing economy include large companies moving to the area, a local university producing highly trained graduates or a hotbed of start ups in an emerging sector.
Bear in mind the difference between a “home” and an “investment”
This is a point which sounds obvious, but it cannot be emphasised enough and should always be at the forefront of your mind. It is human nature to give too much weight to your own personal preferences, but when purchasing your next investment property, you must ignore this urge.
You will not be living in the home, so whether you like the décor, or whether you personally prefer a bigger garden, should not be a consideration. It is vital to consider your next potential investment in a dispassionate fashion and pay more attention to the prevailing market conditions, the supply of tenants, the future prospects of the local area and what tenants are actually searching for.
Bear in mind that property investment is a business – you are investing, not buying another home that suits your preferences. There is little point in spending money on something that local renters don’t want and inviting elongated void periods.
Make sure you have the required funds
When investing in property, you will necessarily have to have a certain amount of capital available initially to pay the deposit. This is the case whether you are purchasing a completed property or an off-plan property.
Beyond the deposit, you will need to have funds for any staged payments (if applicable) and then enough to pay the final total, whether that is a cash payment or a mortgage. If it is the latter, you will need to arrange a mortgage before agreeing to the purchase.
The amount you can borrow as a mortgage will depend on what a firm is willing to lend you, a calculation that they will base on your income and what time frame you are looking at for repayment.
Know your tax liabilities
As a landlord you will be liable for different forms of taxation during the purchase and on any profit you make from your investment. These include
- Stamp Duty Land Tax (SDLT) could apply depending on the value of the property you are purchasing
- Income tax on your annual profits from rental income and any capital gains. You will need to pay whatever rates are applicable in the place you are based
Everyone’s tax liability will be different depending on your specific situation so expert advice is always a good idea. To this end, we recommend speaking to an independent financial advisor before purchasing.
Want to know more about the costs associated with investing in property? Read our complete guide to being a landlord in the UK >>
Property investment in the UK is a mature and growing market that is perfect for investors of all types. Our five steps to succeed in 2021 will help you make a success of your investment and ensure profitability far into the future.
If you require more information, get in touch with our expert team today who will be able to answer any questions you have >>
