11 May How to Invest in Property
Investing in the UK property market is a great decision. Of course, it is neither simple nor easy if you don’t know what you want from your investment. The first step to investing in any property is knowing why you are doing it and what you want. Is there a timeline involved? By when do you expect the property to give you returns, and how?
Do you want to go the traditional way and invest in a residential property, or are you willing to take the risk of trying a non-traditional investment? Is your investment going to be the same as your primary home?
Several such questions need definite answers before you go ahead and put a bulk of your money to buy a property. In this blog, we’ll read about how to invest in a property.
Reasons to Invest in a Property
- Having a property in your portfolio will balance your other investments, but only when the property is not your primary residence. Remember, your home will not exactly give you any returns as long as you are living there. But a second house will add weight to your financial portfolio.
- Property is not dependent on the stock market. It is neither too volatile in nature. The prices don’t just drop or rise in minutes and hours. This makes property investment a less risky choice.
- According to Finimize, the price of residential property has increased by 308%, while the stock market has seen a 228% increase from 1989 to 2018.
- Property investment is a long-term plan where you can get the returns over time and even at the end. For example, you buy a second home and lease it. You will get monthly rent from the tenants.
- When you sell the house someday in the future, you will get a lump sum amount. Even when you factor the maintenance and depreciation, your investment is more likely to leave you on the plus side. Rental income and future price are two major reasons to invest in a property.
- The returns from a long-term property investment will, in all probability, tide over the inflation in the market. However, it depends on the type of property, the geographical conditions, and the socio-political factors in the region/ country.
- Despite the drop in property value in London (due to the pandemic), we cannot ignore the demand for homes. The country has been building fewer homes than necessary. This results in a higher demand for residential property as more people will be competing for each house. It will automatically lead to an increase in value. You will get better returns when you sell your property in the buyer’s market.
How to Buy a Property in the UK
The following are the different ways to invest in a property in the UK.
· Traditional Method
This is where you buy a home, either to live or as a second house. Your property will deliver better returns when the lease amount is more than the mortgage payments you have to make each month (Unless you have bought your second home using your funds or savings instead of relying on a loan).
The advantage of traditional buying is that you have control over what to do with the property you own. You decide when to lease, when to get the repairs and renovations done, when to sell, and to whom to sell.
The disadvantage is that you need to invest in bulk. The down payment has to be cash, and the rest would be a long-term mortgage you have to repay over the years. Also, you need to find a tenant who pays good rent and takes proper care of the house.
· Stock Market Property Investment
Another popular way to invest in property is through real estate investment trusts (REITs). Introduced in 2007 in the UK, these are an easy way to invest in property, most of which are listed on the stock market.
The investors get dividends for their investments. The REIT money is generated through rental, and thus is an attractive investment method. That said, you need to carefully choose between the open-ended REITs (with no fixed number of shares) and the close-ended REITs (with a fixed number of shares).
· Private Funds
This is for those who do not want to take the risk of investing through the stock market. A property fund is created by pooling the money of investors and is used to purchase a property. The returns are divided among the investors. An investment manager will handle the details and take a fee for providing the services. This offers lesser liquidity options/
Make sure to talk to qualified and experienced professionals who can guide you to make the right decision regarding property investment in the UK.