Real estate investments for beginners

There are numerous ways to build wealth in the United Kingdom. One that has great potential to be a profitable endeavour is having real estate investments. For seasoned investors, this can offer financial growth and stability. However, the risk is high for freshly minted ones.

Rushing into this kind of investment does not guarantee a swift return for your money. With hasty and uninformed decisions, investing in the UK’s real estate market might cost you more than what you put in. This is why knowing how to begin and doing it even with limited funds is the key to achieving the desired outcome.

If you are a real estate professional, you might want to send this to your clients who are interested in property investing. This article aims to provide a comprehensive guide on getting started in real estate investments, the best type of properties to go for, and other tips.

Is real estate a good investment in the UK?

In the UK, real estate investing has always been an attractive option for people who want to earn more aside from their daily jobs or businesses. The monetary rewards that property investing offers can help elevate one’s financial status. This makes real estate a good investment in the UK. Here are other reasons why:

• accumulation of cash flow
• hedge against inflation
• appreciation of property prices
• diversification of portfolio
• taxable income deductions

Despite these potential benefits to finances, one study found that younger generations are less likely to consider investing in property.

It is true that newcomers in the real estate investments market are at a higher risk than those who have experience. But this does not mean that property investing is not a lucrative venture for the novice. Being risky does not equate to bad investment.

How to get into real estate investing in the UK

To start your real estate investment journey, explore the market and choose the type of property suited for you. Afterwards, do your research about the property and look for the following:

• price
• location
• condition
• debts (if any)
• claims (if any)
• rights of way (if any)

What is the best type of real estate investment in the UK?

The best type of property is unique to every investor. As the saying goes: different strokes for different folks. Try to consider the key factors if you are clueless about the real estate investment type that is best for you. And when it comes to these elements, not one investor is the same as the other:

• investment goals
• budget limit
• location preferences
• risk tolerance

Most common types of real estate investments in the UK

Since we have now established that the best type of real estate investment varies from one investor to another, let's discuss the most common types:

Residential properties

Houses and flats are the residential properties that typically attract those who want to venture into property investment. They are the popular choice due to their flexibility and variety of mortgage options. Residential properties can be rented to generate monthly income. If you have the budget, you can also go for penthouses.

Curious to know if houses are better than flats and vice versa? Watch this video for further comparison:

Student buy-to-let

Another property investment type is student accommodation. Due to the influx of students in the UK each year, the demand for student housing remains strong. As such, investing in this one can provide a steady rental income. If you are interested, you should focus on areas with nearby schools, particularly suburbs and cities that have universities.

Most student accommodation properties are also located within the top real estate investment centres like Liverpool, London, and Manchester. Another perk accompanying student buy-to-let properties is the high investment yield. This is due to the combination of high rental fees paid by students and the low prices of properties.

While investing in purpose-built student accommodation (PBSA) can be lucrative, it is vital to learn about these:

• student population in the area
• quality of the accommodation
• potential risks associated with seasonal vacancies

To know more about student accommodation, check out this guide to student HMO investments.

Commercial spaces

The third type on our list is commercial spaces, which allows opportunities for rental income from businesses such as:

• office units
• retail areas
• industrial units
• warehouses
• event venues

The downside of commercial spaces is the cost to build or buy. It is expensive to own this type because of its function. A commercial space often requires a larger budget because the property's structure will have to accommodate non-residential lessees. These would be business owners, retailers, corporations, etc.

In turn, real estate investors should have the necessary amount of money to shell out if they want a commercial space. Also, the performance of these properties can be influenced by economic conditions and lease terms.

HMOs (House in multiple occupation)

House in multiple occupation, also known as house of multiple occupancy, refers to properties leased out to multiple renters residing in one house. These renters have separate tenancy agreements. For instance, there are designated ‘common areas’ like toilet, bathroom, and kitchen. These basic amenities are shared by all the tenants within the property.

HMOs can provide higher rental yields due to the number of tenants renting a single property. Since the house can be leased out on a room-by-room basis, it allows the landlord to collect multiple rental payments from the same property. This also means that each tenant pays a separate rent as opposed to one household occupying a flat.

House flipping

Lastly, we have house flipping as a real estate investment. This is the most complex type on our list since it involves more transactions than the others. It deals with buying residential properties, renovating them, and then quickly reselling them at a higher price for a profit.

House flipping can be a more complicated venture with a larger margin for risk. This type also calls for a hands-on investment strategy and is best for those who already have experience in the property market. You will also need a huge chunk of money if you want to invest in real estate development as it involves a lot of work.

The financial rewards of house flipping make the effort worthwhile. Property investors can expect a fast return on investment (ROI) if they understand the many pitfalls of this type and how to work around them.

If you want to learn more about house flipping, watch this video on how to flip houses for beginners:

How much money do I need to start investing in property in the UK?

As a metric, real estate investors need to have at least 20% to 25% of the price of the property they are trying to buy. Other mortgage companies require a smaller percentage, and some ask for a bigger one.

Either way, there is no exact amount; this is because of the numerous financial risks and considerations beyond the initial purchase.

Like finding the best type of property investment, the amount of money you need to start investing in property in the UK can vary from one investor to another. These key elements also come into play:

• property prices
• initial deposit
• mortgage terms
• additional costs

Let's explore each factor one by one:

1. Property prices

To start investing in real estate properties, the amount of money that investors should have greatly depends on the price of their chosen property.

Properties in major cities and desirable areas tend to be more expensive compared to properties in smaller towns or less sought-after locations. Do your research and identify areas where you can find property within your budget.

2. Initial deposit

After knowing the house price, real estate investors should prepare for the initial deposit. This refers to a percentage of the property's purchase price and is usually paid upfront.

The amount required for an initial deposit is different for each mortgage company. The lowest can be around 5% while the average is 15% of the property's value. Keep in mind that a larger initial deposit can help you secure better mortgage terms.

3. Mortgage terms

Unless you plan to purchase property outright with cash, you will likely need a mortgage to finance your property investment. The amount of money you need to start investing in property will also be based on the mortgage terms you can secure.

There are many mortgage types for real estate investors and buyers alike. These home loans cater to the unique needs of every borrower. They also differ in qualifications and amount limit.

For updates on the latest mortgage rates from all the top UK mortgage lenders, bookmark our Mortgage Rates page. We also refresh our findings weekly so you can open it each week to view any changes to the rates.

4. Additional costs

It is better to be prepared for unexpected expenses in real estate investments. Some can also be upfront, but these fees will emerge as you go along. They might not be as expensive as the initial deposit, for example, but it still pays to be aware.

Here are the additional costs associated with real estate investments:

• survey charges
• valuation costs
• solicitor fees
• renovation expenses
• commission fees
• stamp duty (a tax on property purchases above a certain threshold)

Factor in these additional costs together with the other three to find out how much money you need to have real estate investments in the UK.

Starting your real estate investment journey in the UK

Despite the ever-changing numerical figures within UK’s real estate sector, being a property investor is still worth it. As we have emphasised earlier, these investments are a great way to build one’s wealth. It is mostly profitable in the long run but as seen with house flipping, short-term returns are possible.

Learning about the types of real estate investments and the amount of money required to invest will give you a fair chance in the market once you start. Doing your own research is also helpful. Just remember: the more you learn, the more you earn.

Do you find this beginner’s guide to real estate investments in the UK helpful? Have you started learning about real estate investing? Feel free to share your insights below.