What happens if… I want to invest in property?

For a long time, UK investors have held property as an asset in high regard. The promise of regular and substantial income, as well as the fact that it can be relatively easy to obtain (with the right resources) is, for many, the attraction.

To give you an idea of the scale of the market, at the end of 2016 investors owned £486 billion worth of commercial property in the UK, with overseas investors owning 29 per cent of this total.[1] However, as the property market has evolved, particularly in response to more recent tax changes, many investors have found themselves wondering whether property is still a worthwhile investment.

The truth is, the property market is never going to stay the same forever and it’s impossible to predict what’s going to happen in the weeks, months or years to come. If you’re prepared to look at the bigger picture and give your investment time to grow, then property still has the potential to deliver a great return.

Why might property investment be perfect for you?

People invest in property for all manner of reasons but, more often than not, the ‘future’ and more specifically ‘retirement’ are cited as the chief motivations. Some opt to invest in property to provide for their children, for example, whilst others look forward to early retirement and a pension pot subsidised by a successful property portfolio.

Property, when compared with other investment opportunities, is often the safest and most secure long-term investment of them all. In addition, the return on investment is often far greater than if the cash were to be left sitting in a bank account.

A return on property is typically realised in one of two ways, as follows:

  • Rent – earning an income by letting out property to tenants.
  • Selling for a profit – purchasing property and later selling it at a higher price.

There are also a number of different ‘types’ of property investment, whether buy-to-let property, property development or maintenance, an overseas venture or a Real Estate Investment Trust (REIT).

This means you have the freedom to choose an arrangement that compliments your circumstances and meets your needs.

Know the risks and do your research

There are, of course, risks associated with investing in property; it is important that you acknowledge this fact, carry out the necessary assessments and understand which you might be able to mitigate and exactly how.

Here, we identify some of the risks you should take into consideration (but bear in mind that this is by no means an exhaustive list):

  • Be aware that property prices, interest rates and demand for property can all fluctuate and impact upon your investment;
  • Be careful not to underestimate the level of commitment that a property investment requires, both in terms of your time and money;
  • Know how much you can comfortably afford to invest and don’t overstretch yourself;
  • Think about the bigger picture – if you intend to expand your portfolio in the future, how can you diversify and secure the best return on your investment;
  • Calculate your costs (e.g. tax) when it comes to both buying and selling so that it doesn’t come as a shock to you further down the line;
  • Don’t be fooled into thinking that property investment is a quick fix – your money will be tied up for some time and you’ll have to stick at it to really reap the rewards.

If, after evaluating the risk, you’re sure that property investment is right for you, it is imperative that you do your research and don’t just jump at the first property you come across. Research the market, think carefully about location, consider your target tenant or buyer, do the maths, be clear in your mind about how you intend to manage your portfolio and most importantly, seek advice if you’re at all unsure of anything.

Investing in property is a process

Knowing where exactly to begin is often the hardest part of any new business venture, whether property-related or not. The process of investing in property, for the sake of simplifying things, can generally be broken down into the following stages:

  1. Research – as mentioned previously, don’t neglect to research your options when it comes to investing in property. Thorough research is key if you are to build a successful portfolio; the better you educate yourself about the market you’re about to enter, the more chance you have of securing a profitable investment that will be a valuable financial asset for you now and into the future.
  2. Calculate – know your numbers. Be certain of the capital that you have available to invest, aside from your typical income. Decide what you can afford to put forward as a deposit as this will then determine what mortgage deals you qualify for. You should also consider how much money you could potentially make, or lose, on the property; whether it is likely to return the yield you are looking for and how other costs such as refurbishments and agency fees impact upon this.
  3. Locate – find the right property to kick-start your portfolio. Generally, you’ll find that a few properties might fit the bill, so it’s always a good idea to view each one. Keep in mind things that you might have found out from your research prior to the viewings and consider whether you would be willing to pay the asking price based on what you see. Much like buying your own home, once you’re sure you’ve found ‘the one’, put in an offer and hope that it gets accepted.
  4. Complete – take care of all the necessary administration that accompanies the purchase of a property, inclusive of surveys, mortgage, contracts and completion of the sale upon transfer of the appropriate funds.
  5. Make your investment as successful and as profitable as it can be.

How can an Accountant help?

We recognise that, no matter what change the property market may be subject to, keen landlords and property investors and developers will continue to exist. That’s why we have a team of property experts on hand to support you, whether you’re thinking about making that very first investment or whether you already have an established portfolio.

As with any business, tax is a key consideration and a property-related venture is no different. Property tax can be particularly complex and we know that recent changes have hit landlords and investors hard.

However, we don’t believe this is reason enough to give up on your property aspirations. We can support you throughout your venture and assist you with proactive and effective tax planning, identifying and taking advantage of opportunities to minimise your tax liabilities and maximise your investment.

To find out more about the services we offer to landlords, investors and developers, click here.

[1] https://www.bpf.org.uk/sites/default/files/resources/PIA-Property-Data-Report-2017.PDF