Residential Property Investment: The Most Popular Types of Residential Investment Properties
14th November 2024
Residential property investment in the UK remains a great idea for a number of reasons. These include the high demand for rental properties, particularly in large cities such as London, Manchester and Birmingham. Many UK tenants prefer renting to buying due to the flexibility that it gives them.
Property prices tend to rise over time in the UK, especially in popular cities like those mentioned above. Investors can benefit from low interest rates that make borrowing affordable as well as help-to-buy schemes. If you are interested in investing in residential property in the UK, it’s important to find out what your options are.
Here are some of the most popular and lucrative types of residential investment properties you can purchase.
Buy-to-let: This option involves investing in a residential property so you can rent it out to tenants. It can give you a steady rental income, and the value of the property could increase over time, so you can make a sizable profit if you decide to sell later.
Student accommodation: Student accommodation investment is similar to buy-to-let, only you’ll exclusively rent the property out to students. This means it’s best to look for properties located close to universities, which are normally in major cities. You can usually expect to see higher yields due to the number of students living in the properties.
Holiday homes: Renting out homes to holidaymakers can be incredibly lucrative, especially when they’re located in particularly popular areas. Just remember, there may be less demand during the colder months of the year. However, you could stay in the property yourself out of season.
Houses of Multiple Occupancy (HMOs): HMOs are similar to student accommodation although you can rent the rooms out to anybody, not just people enrolled at college or university. HMOs often involve short-term leases, which make it easier to adjust rent when necessary.
Off-plan: Off-plan properties are those that are bought before they are constructed or ready to live in. A big draw of the off-plan property is that it’s often available for a lower price than a home that’s already habitable. These properties regularly rise in value once they are completed and involve flexible payment plans for investors.
Example of Forshaw Land & Property Groups Off-Plan Development at Dobb Brow in Bolton.
Property renovation: Property development is also very popular as it can deliver high returns on investment once homes have been renovated. The amount of money involved in renovating a property can be greatly eclipsed by the increase in value generated by these changes.
Hotel rooms: Another option is to purchase and become the leaseholder of hotel rooms within a hotel. A great thing about this is that the operator of the hotel will normally look after the management of the rooms on your behalf to reduce your workload. Tourism can help you make a substantial profit when you purchase hotel rooms.
Investing in property abroad: Investing in overseas property allows investors to capitalise on growing international markets. Higher rental yields and lower property prices are just two of the benefits investors can usually look forward to.
Real Estate Investment Trusts (REITs) and other property investment funds: REITs and property investment funds help people invest in property without owning it directly. These funds pool capital to invest in various assets including residential properties and commercial developments, offering investors valuable exposure to the property market. REITs pay out most of their income as dividends, which is great for investors seeking a steady income stream.
Buying an Investment Property and the Cost Involved
There are a number of costs you’ll need to cover if you want to get involved in residential property investment. These include:
Solicitors’ fees: You’ll need to pay legal fees to a solicitor to cover the conveyancing process. This ensures the property’s title is clear and contracts are managed effectively.
Deposits: You’ll normally have to pay up to 20% of the overall property price as a deposit. Some investors are able to get better mortgage rates if they can pay a larger deposit upfront.
Estate agency fees: Estate agents normally charge between 1-3% of the sale price.
Land Registry fees: You’ll need to pay a fee to register your property with the Land Registry if you’re making a domestic purchase.
Surveys: A survey must be carried out to check the condition of the property and identify problems.
Mortgage fees: These fees cover the arrangement of the mortgage and the valuation. The specific cost can depend on the type of mortgage and the specific lender.
Stamp duty: If you’re buying an extra property in the UK you’ll need to either pay 3 or 4% as stamp duty. This is known as ‘land and building transaction tax’ in Scotland and ‘land transaction tax’ in Wales.
Insurance: Buildings insurance covers the structure of the property. Your lender will normally require you to take it out as a condition of the loan.
Getting your finance in place
If you are interested in residential property investment and want to make a purchase, you’ll need to ensure that the investment is a good match for your current financial circumstances. It’s best if you have no existing debt aside from your other mortgage or mortgages. You won’t see a substantial return on rental yield or capital growth overnight, so be prepared to be patient to make big gains. You’ll also need to carefully calculate your typical income and expenditure as well as how much capital is currently available to you to ensure you can truly afford the investment.
Finding the right profitable property in the right location
It’s important to make the investment work as hard as possible for you if you want to see a big return on investment. Further down the line, you may need to decide if you want to sell the property or rent it out to tenants. Both can be highly lucrative, but what’s best for you can depend on your specific circumstances.
Have you considered investing in the highest ranking English Residential Investment city in the UK in 2024*?
Manchester and Salford are widely regarded as two of the best locations for residential property investment in the UK.
Forshaws Manchester and Salford City Developments include:
Queen’s Brewery | Victoria House | The Waterhouse | Halo | Silkbank Wharf | VIVERE Residences
Forshaw Land and Property has buy-to-let and off plan investment properties available now in Manchester and Salford.
Here are some key figures about investing in this area:
- Number 1 place to invest out of 20 other English cities*
- Population growth of 1.4% over the next 10 years
- Economic growth of 2.2% annually over the next 5 years
- Rental growth average of 12.2% per year
- House price growth forecast of 19.3% by 2027
- GVA growth prediction of 21.1% over the next 10 years
For further information on investing and residential property investment in Manchester please contact Forshaw Land & Property now.
Sources
* Colliers’ latest edition of its UK’s Top UK Residential Investment Cities report