Monthly Archives: July 2015

What makes property investment so popular?

Of the many ways available to invest your surplus income, property is one of the most popular. Despite the recession, the housing crisis and the aftershocks these have caused, it has firmly stood its ground as a key area for investment alongside cash, bonds and shares. At the moment, the wider availability of buy-to-let mortgages, changes in stamp duty and the pension reform are all factors encouraging a wider pool of people than ever before to take the plunge and invest in property. But why is it so enduringly popular?

Property is easy to understand

Many people prefer the stability of investing in bricks and mortar. There’s a reassuring solidity about a building, about putting your money into something you can physically see. Even the terminology is more familiar. Most people have either gone through the process of buying a property themselves or been around others who have done so. All you need to do is accumulate enough money to pay a deposit and get your sums right so you know you can make the monthly payments. Thereafter, in terms of managing your investment, there are plenty of expert brokers, letting agents and asset management property specialists ready, willing and able to look after your property on your behalf from thereon in, unless you actively want to get involved.

There will always be a demand for it

People always need housing. That’s never been truer than right now, when UK Government figures estimate that there will be 232,000 more households each year, at least up until 2033. Many thousands fewer houses than we need are being built annually; and it is still fairly hard for first-time buyers to get on the property ladder, so it stands to reason that you should theoretically be able to fill your property the majority of the time. This is very dependent on your undertaking careful research into your tenant target market before you buy, of course. Young, professional couples will be looking for one to two bedroom flats with great transport links, restaurants and other leisure facilities close by, for example. A house close to open spaces, good schools and other child-friendly amenities can be marketed effectively to those with young families.

Your tenants will pay for your mortgage

Get your maths and your research right before you buy and it is almost certain that a stable and ongoing supply of tenants will pay off your mortgage through monthly rents while at the end of it, when you are ready to retire, your investment largely remains intact at least – and hopefully even increases in value. Many investors also generate an ongoing income in addition.

You can add value to it

Unlike bonds and shares, which are at the mercy of the market, if you physically own a buy-to-let or a flat, there is nearly always some home improvement you can invest in that will increase the asking price of the property in future. Whether you are looking at renting or selling over the longer term, there is a wealth of things you can do to add value, from simply improving the kerb appeal to a large-scale refurbishment that adds an extra bathroom or an extension for example, if you have the money available.

It’s for the long term

Property investment is not about making a buck. Most people who grow rich from portfolios of buy-to-let property tend to be thinking longer-term – say 15 to 20 years into the future. So while it’s not something you can back off from quickly or without cost if the worst happens and you need to liquidise your assets, it also provides an effective method of saving for your retirement – which you may well be able to do sooner than the rest of the population, if you do your homework effectively!

Preparing for property investment

We all need a dream, especially while we’re in the process of digging ourselves out of debt and working towards financial stability. And it’s fair to say that people with clearly-defined goals achieve them sooner and more easily than those who don’t know where they’re going. One thing to set your sights on for future is investing in property. This can provide a long-term income to supplement wages and other investments. If you’ve always had an idle fantasy of having a portfolio of property, it’s not unachievable. However, a lot of planning needs to go on behind the scenes before you take action. Why not set a bigger-picture goal and start working towards it? It can be really motivating to have something tangible to work towards and inspire you.

All to your credit

First of all, you absolutely must check your credit score. Unless you’re fortunate enough to be able to buy a property outright, you’ll need good credit to be able to take out a mortgage in future. Very often, your credit score will also affect the amount you are allowed to borrow, so it’s worth working to improve that. If your credit rating has taken a hammering in the past, it can take a few years; so why not get a free credit report and score and check what you can do to improve your standing? You can often get a free one-off report from one of the big names in the UK, such as Experian.

We know where you live

The fact is that it is easier to get a loan for a buy-to-let if you are already a home-owner. So as soon as you can, you should plan towards buying rather than renting your own property. Buy-to-let mortgage deals are more plentiful at the moment – and often work out cheaper – than residential ones, but don’t think you can subvert the system by pretending you will be renting out your first home if you intend to live in it. Since the financial crisis, rules surrounding mortgages have become a lot tougher. In fact there are stiff financial penalties for misrepresenting the purposes of the mortgage you are applying for.

Onwards and upwards

Once you have a foot on the property ladder, re-mortgaging to release the equity in that property is a good way to get started. Alternatively, you can take out a new buy-to-let mortgage. You will still typically need a deposit of up to 25% of the asking price, so it’s imperative to continue your savings plan even when you have a home of your own. Remember to keep on reviewing your finances, because if you fail to meet mortgage repayments on either, it is at risk of repossession.

Aim your sights low(er)

Be realistic about what you can afford in terms of a second property. Let’s face it, you aren’t going to be able to afford Buckingham Palace in this lifetime. But if you are looking primarily at property ownership as a way to get a better rate of return on your money than a bog-standard savings account, an increasingly popular option is involvement in peer-to-peer (‘p2p’) lending platforms. These schemes facilitate investment in rental property indirectly. In p2p investing, your money is placed into a pool to fund a diversified portfolio of property. You have no direct stake in physical property, but the platforms boast returns of up to 12%. They’re still in their infancy, though, so you should read the small print very carefully indeed before investing. If you prefer to own something you can see, you could consider investing in one or more units in student accommodation blocks – these kinds of additions to your portfolio can provide high-yield long-term returns and are a great way to start small while thinking big.

Is it the right time to add property investments to your portfolio?

The secret to good investment that will give you financial stability now and in the future and allow you to live the dream is to diversify. If you spread your money into different investment options, then if one fails, you’re backed by the others. If you’re looking at where to get started, there is plenty of valuable advice on investment for beginners. If, on the other hand, you are starting to consider yourself a bit of an expert, maybe it’s time to make the leap to property investment. But is it the right time?

From the market point of view, probably. You’ll have heard the saying ‘safe as houses’ – this is why many are tempted to invest in property. Owning a property is a solid, realistic and tangible thing, unlike stocks and shares that often seem somewhat nebulous and even mysteriously complex.

Have you got what it takes, emotionally and financially? Property investment brings its own unique trials and tribulations; and so here are a few aspects you should factor in before you take the plunge.

Are you a long-term strategist?

Be aware that once you enter the property market as a buy-to-let landlord, you’re committing yourself to a longer-term strategy. You will not be able to liquidise that asset readily and in a hurry – selling property takes time, even more so if you have long-standing tenants in situ. More than that, it can be expensive too: you should be prepared for the administration, legal expenses and Capital Gains Tax too, if you make a profit from the sale. All this will eat greedily into your profits. Are you prepared to tie your money up, potentially for years? Or do you like to keep things as flexible as possible? If you’re a short-term thinker, it may not be right for you at this stage.

Are you risk-ready?

With every investment comes an element of risk, so you should rehearse these thoroughly before making a final decision. Not many first-time investors will have the cash available to buy a second property to lease outright. You will probably find that you’ll have to re-mortgage your existing property, releasing funds in order to buy the second property outright. This, of course, puts your own home at risk if you fail to keep up with repayments for whatever reason. The alternative is to take out a further, buy-to-let mortgage, but this typically entails having a large deposit – as much as 25% of the asking price. And of course, on top of this, you will have fees to pay, which can all mount up a lot quicker and higher than you might think.

Do you have a decent contingency fund?

Say you buy a slightly worse-for-wear property that needs some work – can you afford to replace the roof? Do you have money in the bank to get a damp-proof course done? Perhaps your tenant defaults on their rent for several months and it takes time and expensive legal help to extract the money – or the tenant – out of the property. You’d be naïve at this stage not to expect the unexpected. So make sure you have money laid aside in case of a rainy day, whatever the scenario.

…A hard head for business?

Enthusiasm and passion can give you the drive to go a long way in life, but you must remember that this investment is one that’s meant to contribute towards securing your long-term future. You have to be hard-headed about the whole venture. It’s a business. Beware of falling in love with the wrong property for the rental market you’re aiming at and spending more than you should on features that won’t add value. If you’re worried about getting too emotionally involved in the process, but still fancy yourself as a landlord, perhaps you should consider an arm’s-length approach, using the services of a specialist buy-to-let property brokerage that can give you honest, impartial advice and add value, as well as property investments, to your portfolio.

How to get started in property investment in the UK

Research shows that over two million people in the UK have now made investments in residential property. What makes it attractive is the ongoing and regular income rentals property investment can provide, along with the prospect of being able to sell for a lump sum at some stage in the future. This is especially true at the moment, at a time when interest rates for cash savings are so low. As people’s life expectancies increase and the average age of retirement goes up with it, you may have dreams of bucking the trend and being able to retire early by building a portfolio of property.

We recently shed light on how much being a landlord in the UK costs. If you’ve considered your budget and think that you can now afford to take on that role, we look at things to consider before you get started in this article.

Research…then research some more

There can be no substitute for immersing yourself as fully as possible in the subject and learning as much as you need to know to make informed decisions. You’ll almost inevitable seek out professional advice from a lawyer or experienced property investment broker, but ultimately it is your decision and don’t forget, this is your long term future we’re talking about. Put time and effort into research to make sure you invest your money wisely. Read widely, both fact and others’ opinions, but don’t let the apparent complexities put you off. There are plenty of specialists able to help with those issues.

Have a realistic budget

It’s easy to get carried away with thoughts of free money coming in every month – and by ‘free’ we mean money you haven’t had to put the hours in to earn. Realistically, though, most people will invest through a buy-to-let mortgage. So factor in your repayments. You may be able to offset some of these through your tax bill, but you should be considering not only the cost at current interest rates, but how much you will have to pay if those rates rise. Also consider what else will have to come out of your monthly ‘dividend’. You will need to pay property maintenance costs, insurances and the like too. Use this to start deciding what can you afford and where.

What to buy?

There are still some good deals to be had in terms of run-down properties in up-and-coming areas that you can then renovate and let out, although perhaps not as many as there once were. Be aware if you take this route, though, that you are making a big commitment not only in terms of money, but also time, which can be tight if you’re working your way up the property ladder or have a young family. There will be ongoing maintenance once the property is let out too. New-builds are great for first-time investors: they are typically low maintenance and appeal to a wide range of renters, reducing the potential for void periods which will eat into your profits.

Where to buy?

You want to maximise your ability to rent your property out as much of the time as possible. If you plan to be a hands-on landlord, it makes sense to buy somewhere close to you. But if you’re going to use a letting agent to manage the process for you, you can afford to look for somewhere further afield. Read up on trends that may help guide you: student accommodation is in high demand at the moment, for example, so perhaps you could buy close to a popular university? Maximise your chances of reducing costly void periods as far as possible.

This, of course, is just an overview. It will take a lot of time and effort to climb the first rung on the ladder of property investment. But with determination and forward planning, you just might be able to the life of your dreams sooner.

Can you afford not to invest in property?

As an up-and-coming entrepreneur, you’ll usually want to keep your options open and your finances fluid. Tying up money in property, therefore, may seem counter-intuitive. Stocks and shares, bonds and so on can be quickly bought and then sold when the need arises or the time is right. Property is traditionally a longer term thing and it’s less easy to realise your capital fast in times of trouble.

Perhaps, though, your plan is to make it rich and retire, in which case property is a sound investment. Setting some money aside for the future is just as important as managing the here and now. And every successful businessman knows the value of spreading the risk – as you spread the risk, you increase your options when one thing goes wrong.

Invest in the UK or elsewhere?

Not so very long ago, the trend was for people to plunge their hard-earned savings into cheaper property abroad. Many have since fallen foul of struggling economies – think Spain or Greece, for example. These days, investors around the world are rushing to sink their money into UK developments. There are a number of reasons for this, not least because here in the UK, we benefit from a robust legal system that offers a good deal of protection against financial crisis and the like. The UK is even more attractive than other countries because there is no tax on land ownership: while tenanted, it’s the occupants who pay council tax or business rates. And despite the recent economic crisis which caused a housing crash worldwide, the UK property market has been otherwise stable for many years.

Won’t property management be a distraction?

Owning an investment property inevitably comes with responsibilities. Visions of midnight calls to unblock toilets and get the boiler fixed are unappealing; and definitely not what you need when you have a thousand and one other things on the go. Choose a great property management firm to look after your investment and all that’s included in the price you pay. It becomes somebody else’s problem.

What if I need my money back?

There comes a time when you may need to dispose of your property. Seeking the right firm that offers you a clearly defined exit strategy will mitigate much of the risk. In any case, though, having to factor in a delay while a property is sold can protect against knee-jerk reactions when something goes wrong, giving you time to think about whether selling is a step that is really desirable. Because often, it’s a funny thing about us entrepreneurs – the fewer options we have, the more chance there is of us coming up with a better solution to a problem. It sparks our creative juices.

What’s the best bet in property investment at the moment?

Student accommodation in the UK is right where it’s at just now. It has many attractions for the savvy investor. The British student market is burgeoning, with 38 of the world’s top 500 universities being based in the UK and attracting a lot of interest and wealth from the overseas market. Increased numbers of students creates a greater demand for accommodation, and property developers are seeking to capitalise on that trend. Purpose-built developments are springing up all the time – you only have to take a look around some of the peak growth cities, like London, Liverpool, Newcastle and Manchester to see student developments everywhere.

But development needs investment, so there’s an urgent need for serious investors. That doesn’t mean you have to be a Rockefeller or a Branson to take advantage of the market, though. Many developments are split down into self-contained units, so you can invest in as many or few as you want.

You’re almost certain of high occupancy levels and rising rental incomes over time. And ironically, the student market is a lot less fickle and easier to predict than the usual buy to let crowd.

All in all, do it right and property investment has the potential to offer you an ongoing income, secure and stable, on which you can build all those other risky and exciting options. Why not start building your portfolio today?

The risks and rewards of property investment in student accommodation

Property has always been considered a good investment, and there’s plenty of online advice these days if you’re keen to educate yourself about real estate investing. One area of the market that is increasing in popularity, especially in the UK, is investing in student accommodation. Traditionally, students have been portrayed as a poor prospect as tenants because of their carefree lifestyles and low incomes; and clichéd sitcoms like The Young Ones have reinforced the potential horrors of having your property infested with anarchic, drunken misfits. But all that is changing.

Today’s students pay serious money for their education and consequently expect something a bit more up-market; and definitely a lot of the comforts of home, like wireless broadband, private study areas and gyms, not to mention clean, spacious living conditions. Despite the rising costs of tuition fees, numbers of students entering further education are set to rise. And so the market is seeing a huge rise in investors as developers seek to meet growing demand.

For those with money to invest, whether UK citizens taking advantage of their new right to cash in pension funds early or overseas buyers seeking to spread their portfolios more widely, it’s an investment opportunity with the potential to be much more lucrative than the average buy-to-let. It’s also becoming a more accessible market: many developments are purpose-built, consisting of large numbers of student pods or units, each one of which can be purchased individually, providing a lower entry level for first-time or small-scale investors. But if you are interested in taking this step, what should you be looking for in a development?

Location, location, location

Check out demand before choosing a city to invest in. As well as increasing numbers of students within the UK, we’re also fortunate that our higher educational establishments enjoy a terrific international reputation, thus attracting more and more overseas students too. So do your homework on the best universities predicted to invest most in their students and therefore achieve high numbers of applicants.

Once that’s been established, look at the location of the development itself. The closer it is located to the University, the better the transport links and the better the amenities in the surrounding area, the more chance there is of your property being let out quickly and consistently throughout the year. This obviously provides better returns over the longer term – void periods are one of the biggest money pits for investors in rental property.

Style and substance

If the property is still under construction, do a bit of homework on the developers before you hand over your hard-earned cash. Who are they and what’s their track record in this field? Do they know the local market and what else have they built? Are they using a reputable, preferably award-winning, construction company?

A managed investment

You will not want to spend time carrying out routine maintenance and trouble-shooting on a property which could conceivably be on the other side of the country. Find out the arrangements for property maintenance once the building is occupied. Established buildings that look good and are kept in good working order will always higher numbers of attract tenants, so an experienced and professional management company is a must to attract consistently high rental demand and take any potential headaches off your hands.

What’s your exit strategy?

All good things must come to an end and there will come a time when you want to sell. Be aware that, unlike a traditional buy-to-let, your options will most likely be a little more limited. Check out what they are before you sink your money into it. Often, you can benefit from selling to another investor looking for the quick purchase of a ready-built unit with a proven track record of letting and an instant income.

Investing in student accommodation really can prove valuable and lucrative when done properly, and many are profiting from the changing landscape in higher education every day. Why not take a deeper look at what’s on offer in the UK?

Five potential pitfalls of property investment

There’s a growing trend towards ‘DIY’ these days and it’s not limited to projects around the home. The internet makes it possible to become a self-taught expert in all kinds of subjects. Increasingly, people look to manage their own finances with advice garnered online where previously they have sought out professional help face-to-face. However, when it comes to property investment, you need to ensure that you’ve considered all the options and that you’re well-equipped to address them. Here are five important areas where you may need to seek professional advice if you choose to buy-to-let.

Tax implications

The rent generated by your second property will be treated as income by the taxman; and must be declared on an annual self-assessment form. You’ll be taxed according to the income band you fall into. Some costs can be offset – mortgage interest payments, letting agency costs and maintenance expenses can all help bring down your tax bill, for example. However, you may also face Capital Gains Tax liabilities if you ultimately sell the property for a profit. If you are not fully clear on the tax implications of owning an investment property, it could pay to seek sound financial advice from a savvy accountant.

Legal responsibilities of being a landlord

There are whole swathes of regulation here designed to protect landlords and tenants alike. To avoid falling foul of your legal responsibilities, you need, for example, to have a compliant tenancy agreement in place. The tenants’ deposit must be protected through a UK-government approved deposit protection scheme. The property must have an up-to-date Energy Performance Certificate; and you are also responsible for the safety of gas and electricity supplies on-site. Landlords are under increasing pressure to treat tenants fairly Professional help is often advised to ensure you stay on the right side of the law here.

Ongoing property maintenance

Another area you will be legally responsible for as a landlord is much of the maintenance of the property. Bricks and mortar may look like a solid investment, but inevitably require care and attention from time to time. Apart from that, you stand a better chance of leasing to a better class of tenant if the property is well-maintained. Additionally, you will have to pay out for routine costs such as gas and electricity safety checks, decorating between tenants and so on. Fail to add this to your budget and you may well find that your investment costs more than it generates in profit for you. If you’re no expert at DIY, you’ll need someone who is to ensure repairs and so on are carried out safely.

Void periods

Your property won’t earn money if you have no tenants. In fact, an unexpected or protracted void period may wipe out your profit for the entire year. It’s widely accepted that you should factor in at least 20 days a year when there’s no rent coming in. Because let’s face it, if you’ve taken out a mortgage on the property, the bank still expects their payments, no matter what your status. A good agency can help fill the void quickly and efficiently when tenants move on.

Commitment

Investing in property is a big commitment. You won’t be able to extract your capital quickly if financial disaster strikes your personal finances. Houses take time to sell, unlike shares and bonds which can be disposed of relatively quickly. It’s far better to have a diverse portfolio of investments, rather than to sink your life savings into a single buy-to-let. Take professional advice from an investment broker so you have a sound exit strategy if necessary.

There is a great deal to be aware of and even more to do. That’s why these days, many still turn to professional and independent property investment brokerage services. These provide a dedicated and integrated service to help you invest in property while avoiding many of the common pitfalls – and much of the hassle – that being a hands-on landlord can bring.