Investing money in property is one of the most common types of investment, and can take the form of purchasing buy-to-let property, buying property outright, and property fund investment. The decision to invest in property shouldn’t be taken lightly however. Here’s our ultimate guide to investing in real estate, along with some of the pros and cons of such an investment.
Are you thinking of investing in property? Or do you already have property investments that aren’t working for you? Within our quick and easy comparison service, Financial Advisor UK can match you with a financial advisor who suits your needs. All of our advisors have many years of expertise and are FCA-regulated, to give you complete peace of mind along with the right guidance for your situation.
How do I invest in property?
When you invest money into property, you can either make a return by letting out the property to tenants, or buy the property when it is cheap, do some work on it, and then sell it at a higher price. You can also invest in a fund that is investing directly into real-estate. Such funds are more flexible than buying property outright, as you can decide to withdraw whenever you’d like to out of a pooled fund with a number of investors. You are paid returns based on how the fund performs and the amount of rental income received.
Pros and cons of investing in property
There are various risks to investing in property. If you purchase a new build for instance, there is a risk that the property may not be finished to a high standard, or that the developer will go into administration before or just after it is finished. You may be stranded with a mortgage to pay, or have to fork out extra cash to fix issues with the property. That said, a new build can be a cheap investment that you can almost always sell on for a profit if you don’t have to do extra work to it.
Buying buy-to-let property can be risky in cases where you are not able to secure tenants. You’d need to source another income for those months when you had no rent coming in. You can also unfortunately have times when tenants do not pay rent on time, which can prove stressful and leave you out of pocket. If you have reliable tenants, having a buy-to-let property is a great way to make extra capital.
Generally speaking, the property market can be volatile and fluctuate greatly depending on world and global events, economic markets and general demand for housing. Any investment in property is for the long-term. Bear in mind that if you choose to invest a considerable amount of money in property, if the market drops or becomes slow, it may take a while before things begin to pick up again and you see returns.
Buying and selling costs are other issues associated with property investment, including legal and solicitor fees, estate agent fees, land tax, stamp duty and additional costs when you purchase a buy-to-let property. Doing your sums is crucial to ensure that the investment produces a valuable return against all outgoings. Managing a property also takes time and hard work.
Finally, if you take out a mortgage to buy a property as a buy-to-let investment, you’ll need to ensure that you earn enough rent to cover your outgoings and mortgage. The cost of the mortgage may increase, so you’ll need to increase rents to cover this. If you find that you can’t keep up with your mortgage payments, your lender may repossess your property.
Before making the decision to invest in property, it is worth speaking to a financial advisor through Financial Advisor UK, who can offer help and guidance on the best investment approaches for your situation.
Investing in property investment funds
When you invest money into a property fund along with other investors, you’ll have a fund manager that collects the money from you, and then invests it into several aspects of the property market, such as property shares, or property itself. Examples of property investment funds include unit trusts, investment trusts, overseas property organisations, REITS (real-estate investment trusts), property shares and property funds managed by insurance companies. There are normally management or administrative fees associated with this type of investment, which you’ll need to factor into your returns.
Investing in property overseas
Many investors decide to put money into overseas property, either as a holiday rental or a second home. This type of investment has many pros, including having a second home that you can use whenever you like, in a location you love. You can also let the property out when you are not there (to make extra cash), and get a lot of property for your money depending on where you decide to purchase the home.
Cons of buying property abroad include the potential of having two mortgages on two properties (unless you purchase your home abroad outright). Rental income you receive from the property must also cover you financially in terms of overheads and expenses, as you will be responsible for maintaining the property if you rent it out to others. Finally, the returns you get from an overseas property will depend on demand in the area the property is located in, and the exchange rate. If the property isn’t in a desirable tourist location with high demand, you may not be able to charge the rental income you had hoped for. Managing and maintaining the property can also be an issue if you are only living in the country yourself for a few months of the year.
Is property investment right for me?
Investing in property is a big commitment, and can make you lose money just as easily as it can give you capital. Always ensure that you discuss other investment opportunities alongside your property investment with a financial advisor, so that you can diversify your portfolio. If you are buying property to rent, you should do this with a long-term approach. Always budget carefully and look at the costs involved with maintaining and renting a property per month, against the amount of income you’d receive from rent. Also consider the amount of money you have to invest initially in any property fund investment schemes – look at whether the return is worth it and whether there are any restrictions imposed on when and how you can withdraw invested funds. If you require a mortgage to purchase a property, think carefully about how you will afford the monthly repayments, and try to put down the largest amount (that you can afford) down as a deposit.