Buying real estate in the U.K. can be confusing. Here’s what you need to know to get started.
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Investing in property in the U.K. is highly profitable, and once you know how, rather straightforward. But there are certainly a number of things you will need to know before you get started. If you fail to plan, you plan to fail, and that is certainly the case with real estate.
As a multimillionaire property investor and founder of one of the largest property-training companies, I know there are a few things that people starting out in the U.K. property market often ask or need to know. So, whether you are an overseas investor looking to enter the U.K. market or a British citizen getting started in property for the first time, this article will help you begin the process of buying your first investment property in the U.K.
1. Double the price doesn’t mean double the rent
Sometimes, people will come to me and say that it is impossible to get high returns on investment from renting out rooms in an HMO (house in multiple occupation), for example. In some cases, these people are even landlords themselves who have properties in high-end and upmarket areas. What people don’t realize is that just because a house is in a more expensive area, it doesn’t mean it will command that much higher rent per room.
A simple exercise you can do is to look up property prices in an area via a property portal, such as Rightmove or Zoopla, and find out what price suitable houses are selling for. Then go to a site that advertises rooms to rent, such as SpareRoom and look at the “room wanted” advertisements to see the level of demand and the prices people are willing to pay. Do this for an expensive city in the U.K. and then do it with a cheaper city. You will soon see that investing in more upmarket areas will significantly eat into your potential returns.
2. The North and South divide
While there are great areas to invest in all over the U.K., as a general rule of thumb, it often makes sense to look towards the north and the midlands, which has cheaper property with higher rental returns. Many people like to invest in London because of the rate of capital appreciation, but I believe it is never sensible to rely on this. I prefer to invest for cash flow; that way, if the market turns against me, I can happily hold on to the property while it generates profits.
Even if capital appreciation is your main concern, however, it is better to buy somewhere that has bottomed out and is trending upwards rather than somewhere that has already boomed and at some point will be heading back the other way. Find the hidden gems that are seeing new employers open up or that are in the process of being regenerated. That way you can benefit from both cash flow and rising prices.
3. You don’t need to live where you invest
It makes sense to find a “patch,” an area that you can get to know and understand the property market in. But that doesn’t have to be where you live. The area you live in may not have the high-return properties you are looking for, or be otherwise unsuitable. You simply need to find somewhere close enough that you can drive to and spend some time there getting to know the place. If you are an overseas investor, it makes sense to joint venture with someone who knows the local market, especially if you are unable to come to the U.K. to do the initial research yourself.
It shouldn’t be your aim to manage everything yourself, so it is actually better to invest away from your home. This removes the temptation to sort out problems yourself rather than building a power team and systemizing the business. I always say, “Buy low, rent high — with a property manager nearby.” When you have good local contacts (property managers, cleaners, builders, estate agents), the amount of time you need to be in the area should be minimal.
If you buy in the right areas and put the right team in place, property investing in the U.K. can be hugely profitable. Of course, all this takes time to learn, and it is important to seek out high-quality training providers that can teach you more about the concepts I have outlined here before you get started. Once you have received the relevant training, you can start building your U.K. real-estate empire.