Investing in property – the essentials. By Jean Liggett
Investing in property can be an exhilarating and profitable venture. Some investors are drawn to property due to its being a tangible asset, others by its solid yields, and others still by the desire to invest in something that they can leave to their children. Whatever the reason, property is an incredibly popular form of investment, particularly in the UK right now.
Within the broad spectrum of ‘property’ investment, there are several different options available, including both residential and commercial opportunities. Residential buy-to-let investment is one of the most well known and most established property asset classes. For some, this means buying a property, doing it up and then managing it themselves. Income is earned by renting the property out, as well as in the form of capital gains.
Others prefer to take a more arms’ length approach, by investing in fully managed buy-to-let developments. In these properties, the investor need do nothing other than use his funds to purchase the apartment – finding tenants, managing the property, dealing with repairs, and so forth are all handled by a management company. Again, the investor can enjoy both rental income and capital growth.
Hotel investment is similar to buy-to-let in that the investor purchases the property (in this case a hotel room) and then enjoys income as a result of people using it. Hotel investment is a newer asset class in the UK, but can offer strong returns and is less prone to void periods than buy-to-let apartments can be.
Care home investment is also on the rise in the UK. The investor purchases a room in a care home and then enjoys rental returns for a fixed period, often as long as 25 years. This new investment model is a particularly interesting one, as it is proving to benefit all those involved, including the investor, the care home residents, the staff, the local community and the Care Quality Commission.
Office investment completes the set. The investor puts his or her money into office space, and then derives income from the office building’s tenant(s). There is also the possibility of capital appreciation if the value of the office building increases.
Each type of property investment has its own advantages. A hands-on buy-to-let investment, for example, is ideal for those who have the time to commit to managing a property, while a hands-off buy-to-let is better for those who want to make their money work for them in the background while they focus on other projects. Another example is that hotel investment opportunities often come with two or more weeks’ use of the property per year, making it a great investment opportunity for investors who like to travel.
Taxation also plays a big role when it comes to property investment choice. Hotel and care home investments are not subject to stamp duty land tax, which can make them more appealing to investors. In addition, tax changes being phased in by the UK government between 2017 and 2021 mean that buy-to-let investors will gradually enjoy less and less tax relief on the costs of any mortgage finance that they used to purchase their investment property.
Property investment has a lot of merits when compared with other kinds of investment. The ownership of a tangible asset brings with it a great deal of reassurance, compared with investment in stocks and shares. In addition, property has been proven to perform strongly over the long-term. A study by financial services group True Potential found that returns on bricks and mortar stood at 402 per cent in the 30 years to 2015, outstripped only by the returns from shares. Between 2000 and 2014, the position was reversed, with property returns outstripping those from shares.
For those who’ve decided that property investment is the way forward, and have decided on the type of investment that appeals to them, the next step is to identify which area they want to invest in. The UK has some excellent locations when it comes to property investment and there are plentiful opportunities overseas as well. The key here is research – look at an area’s history, its property prices, projections from national estate agents about price growth, any new infrastructure projects in the pipeline, urban regeneration plans, and so forth. It’s an extensive task but ultimately well worth the effort.
Bear in mind too that cities experience vast fluctuations in property price and rental income, depending on where in a city a property is located. One area of Liverpool (for example) will perform far more strongly than another in investment terms, so research has to be precise and thorough. That’s why investment companies dig so deeply into all of these factors – so that they can provide investors with a choice of properties based on sound knowledge of the area’s performance.
The final thing to remember is that investment in property is just like any other form of investment – it has the potential to make a loss as well as to make a profit. However, by working with a trusted property investment company to identify robust opportunities, the risks can be minimised significantly.
Jean Liggett is CEO of Properties of the World, a London-based property agency that sources UK properties for commercial and residential/ buy-to-let purposes. Properties of the World works closely with buyers to understand their criteria for the property they would like to purchase.
For more information, please see www.propertiesoftheworld.co.uk