Are Investment Properties Worth It?

Before we look at answering the question “are investment properties worth the investment?”, it’s essential to look at why people buy them in the first place.

Simply put, real estate investing is a fantastic way of generating passive income. Allowing investors to earn a cash flow of rental income every month while also enjoying a huge cash pay-out further down the line, few assets can deliver such high returns.

For instance, in Manchester, in the last 20 years, the city has seen an average property price growth of over 315%!

It’s also safe. Despite the COVID-19 pandemic and the UK economy suffering, UK property prices have been increasing at the fastest rate since 2004. Meanwhile, the stock market experienced its worst crash in 2020 since 1987.

Many real estate investors choose to shore up their investment portfolios through diversification, whereby they own multiple properties, often in different locations to make the most of differences in regional property markets.

While this all sounds good, the reality is real estate investing isn’t for everyone. Due to how long it takes to earn rental income and develop capital appreciation, property is a long-term investment.

If you’re a short-term investor and don’t want to wait for the long-term growth of property investment, buying rental property will likely not be the investment strategy for you.

While there are several key reasons why buying buy-to-let property is worth it, there are some downsides which make many landlords think that real estate investment property is no longer the best option.

Property Prices Can Be Expensive

The average UK property value is £292,059. This is an incredibly high number that is likely to rise, and it can deter many landlords from buying into real estate.

While there are various ways to combat high house prices in the property market, including borrowing money with a buy-to-let mortgage, there is no escaping the fact that you’ll need a considerable amount of cash before you can start real estate investing.

Of course, this property cost is for the entire UK average. You can find far cheaper properties closer to £100k depending on what property type you want and which city you are looking for.

For our money, you can maximise your investment potential by securing a buy-to-let apartment in a city centre location like Liverpool. These apartments will be available for far closer to £100k and offer strong returns upwards of 6% NET.

Real Estate Ongoing Costs Can Be Pricey

Alongside the higher prices for purchasing buy-to-let property, there are also many monthly expenses that aren’t present in alternative strategies like stock investing.

To afford the money involved with buying an investment property in the UK housing market, you’ll likely opt for a buy-to-let mortgage.

These work differently than traditional mortgages, as you’ll typically need to pay a 25% deposit. They’re also interest-only, which means you will only pay the interest each month without touching the overall debt.

Lenders will have a more thorough application process than traditional residential mortgages, and you will need to prove that the returns you will make from the property will be enough to pay the mortgage.

Stamp duty tax is another high entry cost, with buy to let investors pay a 5% surcharge on top of standard rates (check out our stamp duty guide to learn more).

All the costs you can expect to pay include:

• Stamp Duty Tax
• Mortgage interest payments
• Tax bill including property taxes like income tax or capital gains tax
• Maintenance costs
• Legal fees
• Land Registry fees
• Homeowners Insurance
• Estate agent fees
• Ground rent
• Property management fees

You shouldn’t be put off by all these costs, as you can earn some serious returns. However, it’s important to note that you will need to save a fair amount to invest in real estate.

How to Buy a Rental Property to Maximise Your Returns

To save as much money as possible and lower the cost of property investment, a smart idea is to invest in either residential property or student accommodation off-plan with a property investment company.

This is for a few reasons.

1. Residential property offers the highest capital growth returns. At the same time, student accommodation is far cheaper and can deliver a good rental yield in the long run.
2. By buying new build buy to let off-plan real estate (buying property that hasn’t yet been completed), you can save a tonne of money on your purchase.
3. Using a property investment company can help you keep the cost down with payment plans, assured rent returns, and exclusive opportunities you won’t find anywhere else.

When looking at properties, you should also focus on capital growth and rental yield to ensure the most successful investment possible. You can learn about what is a good rate of return on rental property in our guide on how to invest in rental property as a beginner.

You’ll also need to find property in the right location, with the best property hotspots currently Liverpool, Manchester, Birmingham, and Luton.

You can get further information about investing in all these locations by checking our guide on the best places to invest in property.

Alternatively, to learn more about buying an off-plan property, be sure to check out our detailed guide. You can learn more about student property investment by also clicking the link.