Your free guide to property investing

Your free guide to property investing

If you’re thinking about property as an investment option, our handy guide provides expert insight to help you decide your next steps. Read on below or download our handy guide.

Why Invest in Property?

Investing in buy-to-let property can be seen as a favourable alternative to other types of investments. Not only does it offer the opportunity for both short term profit and long term gain, but it has proven to be extremely resilient against wider economic challenges.

increase in house prices
since 2000*

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Being able to take a hands-on approach to improve a home - and directly affect its immediate earning potential and long-term capital gain - also makes property ownership an attractive prospect. Whatever the reason, if you have clear financial goals you want to achieve, property is still one of the most stable places you can choose to invest. 

A balanced investment approach

There are many factors that need to be understood in order to create an optimum investment strategy. These will include such elements as your objectives, short-term and long-term cost burdens, and personal circumstances. For example, the older you are, the more you should potentially be wary of risk as you have a shorter time to correct any portfolio downturn.

Diversification is a key term. Put simply, this means having a mix of investment types with the goal being to reduce risk and yield higher returns - avoiding having ‘all your eggs in one basket'. 

So, does property meet the criteria for being a suitable element of a diverse portfolio?

The benefits of property investment

  • Property performance can be very different to traditional vehicles such as stocks and shares so certainly meets the diversification criteria. It’s value isn’t directly linked to stock market performance so if shares dip, there’s not necessarily an equally negative correlation with property. 
  • Property can help you achieve higher returns whilst reducing the risk of your overall portfolio. 
  • Property can provide protection against inflation - there is an opportunity to increase rental income either contractually or at tenancy change-over so real returns can be maintained.
  • Property is a tangible asset that you can physically impact to increase its value and make returns from. Good quality tenants, reduced void periods, decoration and property improvements can all directly affect its value. You have more direct control here than over other types of investment.
  • Property provides regular income generation which can be stable and actively managed, either directly or through a management business. 

So, we’ve established that property is a powerful investment vehicle. But what type of property is best for you?

What makes a good property investment?

When assessing what makes a good property investment there are several factors to consider. It’s a good idea to take personal tastes out of the equation - be objective about what property would create the best rental opportunity as this may be very different to one that you would live in yourself. 

A good letting agent will have local property experts to advise and support new landlords and ensure that they have everything they need to make an informed decision. 

What are the potential risks?

With the right guidance and patience, a property can become a great asset and the rewards of being a landlord can be plentiful. As well as additional income there are opportunities for tax deductions and it can help you achieve long term security. 

But of course, there are risks to consider which it would be remiss not to highlight.

  • Property prices can fall as well as rise, which may likely have a greater short-term impact as historically over the long-term, property value increases. But past performance isn’t a guarantee of future performance although property risk would look to be relatively low.
  • Rental income may vary as demand changes. When there is an over-supply of property, this can force rents down. There is also the risk of void periods, where the property lies empty and generates no income at all.
  • Rental property can have significant costs attached to it, these will need to be weighed up against the returns generated to understand the margins involved. Long term, new costs may appear, for example, should compliance requirements change or taxes increase.

Buy to Let costs

Tax for landlords can be complex and it comes in many different forms, including;

  • Stamp duty in England, Land Transaction Tax in Wales and Land and Buildings Transaction Tax in Scotland
  • Income tax
  • Capital gains tax
  • Inheritance Tax
  • ...and more. 

Insurance costs can also be significant but are a necessity. A landlord insurance policy will cover the building and its contents, it can include rental protection cover and some policies can cover legal costs in the event of a dispute. 

Additional cost considerations include:

  • Property upkeep and renovation
  • Safety checks
  • Licensing
  • Furnishings
  • Marketing costs

These will vary to a greater or lesser degree, depending on where you live or what property you have so it’s important to do your homework and understand what your overall cost scenario looks like. A letting agent is a good place to start to help you understand your investment opportunity.

Lettings agents will also charge a fee but a good agent will provide a service and value that will save you time and money in the long run and help you make your investment as profitable as possible.

What is the property purchase process?

The process of purchasing a buy-to-let is not too dissimilar from buying a property to live in. If you need to finance the investment, you will need to consider a buy-to-let mortgage which tends to have higher charges than a mortgage on a property you live in. Once you have a deposit you will have to go through an affordability check to understand your budget and secure the mortgage. After you have identified a property, the mortgage provider will assess its rental value and any additional work that needs to be completed. 

Once you have an offer accepted, you can then start to think about the actual process of letting it out and begin to look ahead to enjoying the benefits of investing in property. 

We have many years of experience and expertise in letting property. From finding your first tenant, arranging all the legal paperwork through to ongoing management, we can help you make the smooth transition to becoming a landlord.

Countrywide Mortgage Services can help with finding you the right mortgage. Just click here to find out more.

Expanding your portfolio

Once you have invested in property and started your journey as a landlord, then you may wish to consider developing your business approach. Similar to investing in a stocks portfolio, property in itself can offer a diversified approach if and when you look to expand your property portfolio.

Varied location investing. There is no absolute reason to invest in property close to home; looking at opportunities across a wide area may enable you to take advantage of different yield potentials (rental income measured against the value of the property). This will also spread your risk if one area suffers a dip and helps to smooth out any variations in return.

Varied property types. Investing in a different selection of property types - from family homes to single bedroom apartments allows you to reach a variety of market segments and also protects against changes in demand for different types of property. 

Pricing. Consider what mix of property may be best for your budget. Instead of a single property, could you invest in two cheaper properties instead? This could you give you a greater opportunity and again is a way to diversify and reduce your exposure to risk

Current rental market conditions*

Despite challenging economic pressures, property can still present a potentially strong investment opportunity. There are locations and property types that can generate a good yield in the short term and long term capital gains have been a reliable feature of property investments over the years, although this isn’t guaranteed of course.

Demand from tenants for a place to rent continues to grow, with urban locations seeing greater demand than that in rural areas, due to strong employment growth, and new build supply around city centres. Stock shortages mean that rents will continue to rise through 2024, with the supply of rental properties falling by 46% vs the 5-year average. The demand/supply imbalance means that rental value in the UK has increased by 9.7% in the last 12 months with growth spread around the country; rents have risen by 9.0% in London, 10.7% in Wales and 12.9% in Scotland.*

*Statistics from Zoopla UK Rental Market Report December 2023

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