Buying your first investment property is not too dissimilar from buying a residential property to live in, however there are some key differences between this and buying your first home. This is first and foremost a business decision, so you should be prepared ahead of time and read our guide to make sure you understand what you should know when investing.
How do you buy your first investment property?
Buying an investment property is largely similar to buying any residential property, as are the considerations which go with it. If you know your requirements, financial capabilities and time scale, then you are ready to speak to a specialist property agent and start the process.
Once you have decided on a property, you will need to pay the deposit initially, followed by the balance as per the agreed payment terms. Once you have done that you will be the legal owner of the property.
What are the different types of investment property?
There are many different types of investment property that you can purchase for your portfolio, all of which have their upsides and downsides. The most common types are:
- Off-plan properties – Buying off-plan property means that you are purchasing before it is completed. This can be done from the planning stage onwards. Off-plan properties can often be bought at a below-market rate and have higher potential for capital growth than a completed property. Indeed, you will already be earning capital appreciation on your off-plan property during the construction period, meaning you will be in profit on completion.
- Completed residential property – This is when you buy a property that is already operational and able to be rented out straight away. The downside of buying a completed property when compared to an off-plan property is that a completed one could have additional costs attached. These can be unavoidable and include maintenance, structural defects and more – all of which will need fixing immediately and can be costly. Likewise, a completed property may not meet the required EPC rating and need work to get there before being rented out.
- Student property – Student property is an interesting alternative investment which can add diversity to your portfolio. Tenant demand is generally growing in most major university towns and cities, and you can rely on a new wave of tenants each year. However, you will only be able to rent it out during term time, and the lower entry price is often offset by lower rents.
How to decide if an investment property is right for you
As mentioned above, buying an investment property is a business decision, and like any business it will require a lot of work. This is a key difference between investing and buying a home to live in, and you should make sure that investing in property is right for you before continuing.
For example, you will need to go through the process of finding a tenant for the property to start receiving rental income. This is a time consuming, paperwork-heavy and potentially expensive process which may take a lot of trial and error to get right – and in the meantime, the mistakes you make are likely to cost you. Due to this, it is important to be aware of the amount of work and time it will take before you invest.
However, there are other options. If you would prefer not to do that and enjoy all the benefits of being a landlord with none of the hassle, you can employ a professional lettings and management agency who will take care of everything for a small fee. This includes marketing the property, carrying out viewings and inspections, arranging maintenance work, and more.
These companies will often also have a waiting list of tenants ready to move in, especially if you invest in a city centre luxury development. Our in-house agency, Alliance City Living, is a good example of this principle in action. They have fully let all of our buildings and are still receiving dozens of enquiries each day – making them the ideal choice of letting and management agent when buying with Alliance Investments.
How to determine ROI and yields
Return on investment and your rental yields will understandably be your number one concern before investing. What level you should seek depends entirely on your personal goals. If you are looking to make a large sum of money in the short term, it may be wise to concentrate on areas where house price growth is high and will translate into fast capital appreciation.
On the other hand, if you are investing in property for the medium- to long-term, which is recommended, then you will inevitably concentrate more on the rental yield. This is your monthly rental income expressed as a percentage of the original purchase price. After you subtract your costs, you will have your NET yield.
The highest yields tend to be found in the luxury city centre markets of the fastest growing areas. Places like Manchester are the perfect example of this, and may even provide a sweet spot between high capital appreciation and reliable, growing rents.
The importance of doing thorough research, and things you must consider
Finding the right place to invest is absolutely the most important thing you can do when investing in the UK property marketplace. You want to buy somewhere with high tenant demand, a shortage of property, a growing economy and good infrastructure. All of these factors in one place are a recipe for success for any investor, but especially for the first-time investor.
For example, Manchester is a fantastic option for all investors due to its market conditions. Statistics from Alliance City Living at the end of Q2 2022 showed that the number of apartments available to rent in the city by July was just 664 – 1,000 fewer than the same point in 2021 and 1,700 fewer than in 2020.
Average rents are at their highest levels for most apartment types, and the number of homes being let is also extremely high. There were 976 rental homes let in July 2022, compared to 1,066 in the same month in 2021, 638 in 20202 – and 810 in pre-Covid July 2019.
As can be seen, competition in Manchester is extremely high and this is pushing rents up across the city, especially in the luxury city centre market. This is a perfect time to buy an investment apartment in Manchester.
With the City Council predicting another 70,000-person increase in the population by the end of the decade, the current situation is most likely to continue far into the future. In response to this, JLL has predicted that house prices in Manchester could increase 25.8% and rents by 15.4% by 2026.
Example of an incredible first investment opportunity…
As mentioned previously, Manchester provides a good mix for landlords, and all first time investors should consider it. Tenant demand is high, the number of available properties is low, and both property values and rents are growing each year.
So, if you are looking to buy an apartment in Manchester and take advantage of all the benefits the city has to offer investors, where should you start? A great example of a Manchester city centre property development which is favourable to investors is Uptown.
Uptown is a stunning riverside development only a short walk from the city centre, Spinningfields, Deansgate and Manchester Victoria Station. It is made up of 156 outstanding luxury apartments – and the last premium selection has now been released to market.
Each apartment is designed to have a healthy amount of natural light thanks to floor-to-ceiling windows throughout. This focus on providing the highest possible standard of living is also followed when it comes to the fixtures, fittings and furnishings – all of which are of the highest quality.
Furthermore, each apartment is fitted with smart technology which will adapt to the resident’s routine and make intelligent decisions to reduce energy usage and bills. Modern Methods of Construction have also been used to further limit the building’s impact on the environment. Consequently, Uptown is the most sustainable new residential tower in Manchester – a status which makes it more appealing to tenants now and will make it more attractive on the resale market in the future if and when you decide to exit your investment and realise your capital appreciation.
Finally, Uptown also provides a range of amenities including a gymnasium, cinema room and a range of roof terraces and a front of house management team who are in the building 24/7 to provide an unbeatable lifestyle.
Want to learn more about investing in Manchester? Get in touch with our team for more information about the city and Uptown by clicking here >>
