The UK is full of exciting property investment opportunities, but how do you work out which one is best for you? Answering these 4 questions will set you off in the right direction and help you easily identify the best properties for you. Let’s get you off to a great start!
1. Income, growth or total return?
Firstly, think about what you really want this UK property to do for you. A good starting point is deciding whether the passive income or the capital growth is most important for you. Residential properties will provide both, but most are weighted more towards either the income or the growth.
For example, if you are coming up to retirement it may be more important to find properties which are weighted towards providing stable long-term income. If you have 10 years or more to retirement you may be more interested to capitalise on growth hotspots for maximum wealth increase and if you are building a larger portfolio you may prefer to focus on the combined ROI regardless of the weighting.
2. Off-plan or existing property?
The answer to this question depends primarily on two factors – your risk tolerance and your investment timeline.
Generally speaking you will make more money investing in an off-plan property because you can secure lower pricing, higher yields, better incentives and better apartments in the building. They also allow you to spread the capital you invest over a period of time. However, these higher returns come with additional risk considerations and whilst there are several ways to minimize these risks, they cannot be eliminated.
Existing properties give you greater visibility of what you are buying and can provide you with immediate income. Bear in mind that you are generally going to earn lower returns versus off-plan purchases and will have to invest your full capital at once.
Investors looking to maximise their returns and those wishing to spread their investment over time may prefer to look at off-plan opportunities. Investors with capital available to invest straight away for immediate income and those with a low risk tolerance may prefer to explore completed properties.
3. Cash or mortgage?
In the UK you have 3 main options to buy residential properties: outright in cash, with an interest-only mortgage or with a capital repayment mortgage. Each has its benefits.
Buying outright in cash is the lowest risk, lowest cost, and simplest option. Your returns can be substantial, but they will rarely outperform the return on capital produced by using a mortgage.
Interest only mortgages allow you to borrow up to 80% of the property value and only pay the interest on the loan without having to repay the loan until you sell the property. This allows you to invest just 20% of the property value, still benefit from the full capital growth and generate passive income in the meantime.
Capital repayment mortgages allow you to borrow up to 80% of the property value and repay the loan and interest over a set number years (usually up to 30 years). This option will usually produce the highest return on capital as the loan and interest amounts decrease over time. Properties that produce strong enough income to cover the mortgage repayments effectively mean your tenant pays off the loan for you and by the end you own a property outright, having only ever paid 20%.
Your answers so far will help you more accurately find a budget that fits comfortably with your strategy.
If you are buying outright in cash as an international investor, it is simply a matter of finding a comfortable price point and adding around 7% to cover your purchase costs. So, if you are looking at a £200,000 property you need to have around £214,000 available.
If you are buying with an interest-only or capital repayment mortgage you need to have at least 20% of the property value available, plus 8% of the price to cover the purchase costs. So, if you are looking at a £200,000 property you will need to have at least £56,000 capital available. If you are reliant on a mortgage to complete it is usually advisable to have an additional 10% or so (£20,000 in this case) as a contingency in case of any changes in the mortgage market or your affordability.
If you have £220,000 capital available to invest in this scenario you could consider buying one property outright in cash or up to three properties of the same value with mortgages.
Having a good idea of your answers from the beginning will help you set a profile of the best properties for you, therefore making your search more efficient and successful.
During your free consultation we will help you create your property profile based on your personal goals and situation and propose relevant opportunities so can make the most of your time and get off to the best possible start.
Our team have over 15 years of consulting experience and we love what we do! This is one of the most important first steps so why not get started and book your free consultation with us today.