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How Much Money Do You Need to Invest in Property?
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As the real estate market in the UK is growing and is estimated to reach a value of $21.99tn by the year 2024, it’s no wonder why investors are looking to add property to their investment portfolio.
As a great way to steadily build wealth, allow your investment to appreciate and achieve passive income, property is an investment type not to be missed. Despite its incremental value to your investment journey, knowing how much to invest in property is a common grey area for many.
Recognising this, we have broken down this topic to help you decide how much money you should put towards property investing and the factors that you must consider along the way. Read on to learn more.
Why Should You Invest in Property?
It’s no surprise that investing in the real estate market is a popular option for many investors, as the average monthly costs of buying a home have been lower than renting it since 2010.
Not only this but property is considered a stable and profitable tangible asset that appreciates, can provide a stream of passive income, and lowers the risks of your property portfolio by adding diversification.
What Are the Different Types of Property to Invest In?
There are different ways to invest in the UK property market. These types of property include residential property, serviced accommodation and student accommodation. These types are highly popular with property investors due to their profitability margins – But why?
Residential Accommodation
Houses and flats are a great example of residential accommodation and are an increasingly popular property investment. With an increase in foreign investors and low interest rates, residential property investors aim to generate passive monthly rental income and increase their capital growth.
Serviced Accommodation
Serviced accommodation involves renting out furnished properties on a short-term basis, similar to hotels or holiday rentals. It can be more profitable than traditional rental property but it requires more management.
Student Accommodation
Student accommodation is another popular type of investment property, as there is typically a high demand, typically near education institutes like universities. Though there is a high demand for this type of accommodation, it’s important to be aware of the potential risks involved, such as damages and low demand during non-term times.
So, How Much Do You Need to Start Property Investment?
There is no one set figure as the property price will vary depending on the type and location. In this section, we’ll touch on the factors that you must consider financially before investing in residential, serviced and student accommodation. Keep reading to find out more.
Residential Property Costs
When investing in property for residential purposes, you must factor in the following costs into your investment budget:
- Cost of mortgage repayments
- Service charges if the property is leasehold
- Annual ground rent charges to the freeholder
- Property management fees (if you want to be hands-off)
- Maintenance costs for repairs and maintenance
Serviced Accommodation Costs
In addition to the costs mentioned above, serviced accommodations require furnishing and equipment to a high standard to be attractive and stand out from competitors in the area.
Without these features, they are not in a condition to be let out for short-term stays. After guests have stayed, serviced accommodation will also require cleaning and maintenance to comply with health and safety standards.
Student Accommodation Costs
Student accommodation often requires upfront investment in furniture and fittings. Having an idea of the type of student accommodation you’re interested in (e.g. houses or apartments) and the number of residences is a factor to consider. With student accommodation, you must factor in extra costs for maintenance as the turnover of tenants is usually high.
How Does a Buy-To-Let Investment Work?
A Buy-to-Let mortgage is designed for those purchasing a property to rent out rather than live in. Typically, these mortgage payments are interest-only, meaning monthly repayments cover only the interest, not the principal (capital).
Despite lower monthly payments, they require planning for the full repayment at the end of the term, which is often through selling the property, using other investments, or refinancing.
When Should You Finance Your Property?
If you’re looking for a better mortgage rate, manage unexpected costs and quickly capitalise on investment opportunities, financing your property is a great idea to understand your current property value. But how do you know when it’s time to do this? When you have the following, it is a great time to finance your property:
- A sizable deposit
- Are in a comfortable and stable financial position
- Have found an attractive deal with high returns
What Taxes and Fees Are Involved in Property Investment?
There are various taxes and fees concerned with property investments and it’s better to be aware of these before investing so that they don’t come as a shock later down the line. These include:
| Tax/Fee | What Is It? |
|---|---|
| Stamp Duty Land Tax (SDLT) | SDLT is payable on property purchases over a certain threshold. |
| Income Tax | This is paid on rental income after deducting allowable expenses. |
| Capital Gains Tax (CGT) | CGT applies to the profit made when selling a property. |
| Legal Fees | Solicitors handling the property purchase deal with legal fees. |
| Survey Fees | This applies to property inspections and valuations. |
3 Tips to Help You Decide Your Budget
With lots of information to think about before property investing, keeping these 3 tips at the forefront of your mind will give you a point of reference for what to consider when setting a real estate investment budget.
- Research property prices to help set a realistic budget and understand the market
- Choose a mortgage deal that suits your needs and factor in interest rates, loan terms and repayment flexibility
- Plan ahead to cover additional costs like legal fees, stamp duty and survey fees
Strengthen Your Property Portfolio With Peninsular Property
With its growing demand, property investment seems like a no-brainer. However, you should have property investing strategies in place to ensure your decisions align with your financial position and goals while taking into account any risk factors.
With over 30 years of dedication to the real estate industry, at Peninsular Property, we utilise our experience to ensure that you make informed decisions and land the best deal possible.
Combining our knowledge, experience and excitement to help you grow, our experts thoroughly listen to your needs by asking the right questions regarding your investment journey.
Whether you’re looking to buy property for a personal residence or you’re adding it to your investment portfolio via a buy-to-let property, you can remain confident that we have your best interests in mind. Contact us today to see how we can help you.
