Investing in Property for Beginners
Introduction to Investing in Property for Beginners
If you’re only just starting to think about investing in property, it can be difficult to know where to begin. You might have a long-term goal in mind but one of the best steps you can take is understanding the fundamentals of property investment.
This is why we’re looking at investing in property for beginners – from the different types of investors in the market to finding your ideal property. More importantly, we’ll also examine how you can start investing with little to no upfront money, leveraging your situation to work for you in the long-term.
What Types of Investors Are There?
To start with, it’s best to understand that there are different types of investors out there and typically, you’ll fit into one of these categories. Commonly, these categories are identified as:
- Passive Investors
- Active Investors
This stage is typically where many of us start our investment journeys. Pre-investors generally have no investments in place and will be mainly focused on consumption, with day-to-day living taking precedence over savings or investment assets.
For whatever reason, many pre-investors are yet to consider their financial future and will have little in the way of financial planning. It’s common that as pre-investors earn more, they’ll spend more, prioritising a comfortable lifestyle now over security in the future.
While this is a perfectly natural state to be in, if you’re looking to build a secure retirement or you’re aiming for financial freedom, it’s important to prioritise a savings or an investment plan.
This is the stage where you need to consider what you’re going to do to take the next step – moving beyond financial dependence into complete independence.
Passive investors can largely be categorised as people that have started on their investment journey but are happy to play a ‘hands-off’ role. The shift from pre-investor to passive investor will happen naturally for many people, as they start to consider later life and make the necessary adjustments.
These types of investors will generally have the fundamentals in place: home ownership, pension plans, asset portfolios and savings, which can all be adequate for reaching financial security goals.
It’s important to remember that this isn’t a category set in stone. Many people will have different assets available to them and still be passive investors. While one person may have a deep savings account and shares in a company, others may have a second property that is delivering regular income.
The ‘passive’ aspect is the most important thing to consider. Passive investors will delegate by and large, using the experience of experts to maintain their wealth or assets. Property investors may work with a mortgage advisor, property management company or lettings agent, for instance, allowing them to focus on other aspects of their life.
Many international property investors fall into this category, using the experience of other people in their chosen location to run the asset while they reap the benefits of the market.
These types of investors control every aspect of their investments, to the point where managing their wealth is a full-time endeavour.
The best way to distinguish between passive and active investors is this: passive investors are happy to let their returns come to them with minimal input, while active investors will actively adjust and tweak their investments constantly to maximise gains.
Small steps now can make a huge difference in the future and for those that want to build consistent wealth, it’s necessary to maintain a routine as an active investor.
Once you know which stage you’re at and what you have in place, you’ll be better suited to start building a property investment strategy – starting with the property itself.
Finding Good Investment Properties for Beginners
Most active property investors will probably start off by looking at property portals. The two most popular portals in the UK are Rightmove and Zoopla which own the vast majority of the market of online property listings. Rightmove is the UK’s most visited property portal, while Zoopla, part of ZPG, has consolidated its position as the second-largest property website in the country.
You can use the filters to match your needs such as location, price and property type. Portals also have great comparison data such as Rightmove’s ‘Properties sold nearby’ which can help you build your investment case.
Property auctions are very popular in the UK for investors. Properties otherwise known as ‘ lots’ attract potential bidders in advance.
Investors need to typically be more hands-on with properties sold at the auctions as the ‘lots’ are usually distressed. Normally, a distressed property is a result of a homeowner who was unable to keep up with the mortgage payments and/or tax bill on the property.
While there are deals to be made at auctions, in recent years as the demand for BTL property has increased, realistically most sales are made over asking price.
If you are a landlord, a good Estate Agent could be your new best friend. Estate Agents have strong knowledge of the local market and will know a good investment property from a bad one. They should also understand the demand and be able to put you in touch with the right lettings partner if they do not already offer the service themselves.
Direct from Developers
You should be able to discover most available properties on these portals, auctions, or with Estate Agents but often private developers such as ourselves list independently. Going directly to a developer usually comes with benefits such as buying at better prices and having a more well-rounded experience and aftercare service.
You can browse our most recent property developments here.
How to Choose Good Investment Properties
Finding the right investment property to suit your strategy is vital. Before you identify the asset itself, you’ll need to understand which asset and which location best fits your plan.
This is where research will prove to be vital, particularly when you’re identifying locations with investment potential.
Things to consider are regeneration occurring in the area that could draw in future tenants, transport links that can support this new tenant base, good schools and leisure facilities, nightlife and nearby career opportunities.
It can also pay to look for areas that are working towards building these features, as emerging markets will typically be more affordable initially and see exceptional growth in the long-term.
When you’re looking at properties themselves, you’ll want to take into account their past performance, build quality and in some cases, the developer associated with the building.
Past performance is commonly broken down into rental yields and capital growth. Both of these are key investor metrics that should be researched thoroughly so you can get an idea of what your investment stands to make.
Build quality and the track record of the developer can also be useful to research, particularly if you’re investing in an Off-Plan property. This way you can understand which developers are likely to deliver the best product and feel secure in your investment.
How to Invest in Property with No Money
While it may be obvious that you need money to invest, there are some ways to get involved in property investment with a much lower upfront cost.
As always, you should always speak to a financial advisor before you make any form of investment, regardless of the amounts of money you’re putting into the asset.
One of the most common ways of generating funds for an investment is releasing equity within your home through a second loan or remortgaging. This can be useful if you’re cash poor but asset rich and it’s a relatively straight-forward option, but remember: if your investments don’t go to plan, you’ll still have this debt outstanding against your home.
Another common method is buying a property under-value and refurbishing it to sell at a profit. Property flipping is fairly common but is considered a much more short-term investment focused on accelerating value. One thing to consider is that property benefits the most from long-term growth, maximising returns and natural market growth to deliver the higher returns many associate with the asset.
REIT is an option for investors that are ready to start putting money down but don’t want to completely finance a new property. A Real Estate Investment Trust (REIT) is a collection of shares in residential and commercial property that makes up a portfolio. This is a typically low-risk, low-return way of investing as the REIT will generally share 90% of the rental profit with stakeholders.
One other method is Property Crowdfunding, which has recently grown in popularity. This is where groups of investors pool their money and all own a share of the property equity. This is typically done in two different ways – either every investor gets a share of the profit upon sale or each investor gets a portion of the rental income over time.
These are just a selection of methods that people can use to invest in property with little upfront cost but for many, success can be found in just saving aggressively for a deposit, which is the most straightforward method of investing in property.
If you’re looking to start investing in property, you can visit our landlord hub for a full range of resources – designed to make your investment journey as easy as possible.