5 property investment methods for beginners​

This is probably the most traditional route into property investment. You buy a secondary property, rent it out to tenants over a long period of time, using the rent to pay for the mortgage or recoup the cost of the property.

Unless you’re already sitting on a chunk of money to buy the property outright, you’ll need to take out a specific buy-to-let mortgage. These differ from your standard residential mortgage in a couple of ways. Firstly, the minimum 5% deposit for a residential property often rises to 25% for a buy-to-let. Monthly payments are also often higher so you’ll need to crunch your numbers to make sure your bottom line isn’t affected. 

With the stamp duty holiday now over in the UK (at time of writing March 2022), an additional fee must be paid on top of your initial deposit which is currently 3% of the total value in most cases. 

Once you’ve got your property you’ll officially gain the status of landlord. With this comes extra legal obligations such as ensuring a safe environment to your tenants. If you prefer a hands-off approach  you can hire a property manager for an additional cost. If you consider yourself handy with DIY, now’s the best time to polish up on your skills to prevent any bumps further down the road. It's also worth noting that once you become a landlord you'll also need to submit a self-assessment tax return each year too.

Due to government measures, buy-to-lets have less profitable punch when compared to the past. Although the first £1,000 of your property’s rent is tax-free, higher and additional tax rate payers feel the pinch the most when it comes to profit. Previously, landlords could deduct mortgage interest payments from their rental income. Today’s landlords can only take advantage of a 20% tax credit on their interest. This means that if you currently pay 40% or 45% tax on your salary, you’ll be paying more for your property’s income.

It is possible to set up a limited company to include these mortgage interest payments within, however if you’re new to property investment, it may be a good idea to seek professional advice. 

Acting as the halfway house to house renovation, pre-renovating is all about putting in the hard labour for potential buyers.

Imagine that a family has just inherited a fully-furnished house that hasn’t been looked after and is in need of a full decoration. They list this property under market value at £130,000 with average house prices in the same area valued at £160,000. After stripping the property to its bare-bones and tidying up the garden, you’re now able to sell the property for £140,000 thanks to a bit of elbow grease.

Unlike a full renovation, your aim isn’t to transform the entire house. Instead, the most used method is to buy a property that’s generally looking worse for wear, tidying it up with some simple cosmetics, before selling it on again for a quick profit to renovators or movers looking for a DIY project.

The main challenge with this method is that it takes a particular type of house in order to reap the profits. You must be able to identify the fine line between an unpolished gem and a house that’s barely worth its bricks. Knowing the area will help you roughly gauge how much margin you have upon the completion of your work. Doing your research before purchase can help lessen this risk.

Stamp duty, and solicitor fees are other things to think about as they can also eat into your profit. Ensuring these are all calculated beforehand will put you in good stead before getting your hands dirty. The best case scenario is to line-up a buyer beforehand so that you can avoid estate agent fees and ensure a speedy transaction upon completion.

In comparison to pre-renovating, renovating sees larger scale works done to improve the appeal of a home. This method can be quite pricey and requires a bit of property know-how to get the best returns. As well as buying the house itself, an additional budget is needed to redesign certain aspects that will bring it to the top of a buyer’s wishlist.  If you’re in need of some motivation, Hamptons estate agents found out that renovators made £48,190 on average per home during the pandemic.

When looking for a property, popping into an auction may be your best bet if estate agents aren’t quite cutting it. Although there will be bargains, be mindful of bidding wars. Thinking in the eyes of the buyer will pay dividends when you come to selling the property. Follow Kirstie and Phil’s advice of location, location, location. Even the best renovations won’t attract buyers to an undesirable part of town.

It is worth noting that the stamp duty holiday has now ended, meaning that you’ll now have to pay an additional cost depending on the purchase price. By keeping your friends close and tradesmen closer, you can lower labour and material costs that often turn out to be more than expected. Picking where to put your money is a big part of the job. Statement pieces such as a new kitchen can add somewhere between £20,000 and £30,000 to a house’s value. Loft conversions rack up even more profit, adding up to £100,000 if you manage to fit a bedroom and en-suite in there.

The foundations of any good renovation is to buy ahead of the curve in an up-and-coming location. As a general rule, you don’t want to spend any more than 70% of the renovated asking price after costs are deducted. This way you’ll make your budget work harder and ensure a tasty chunk of profit at the end.

A Real Estate Investment Trust (REIT) is when you put money into shares of a company who invest in property. Although you won’t own the property itself, you will own a stake of the company who does, allowing you to make income without the substantial startup costs.

As REITs are required by law to pay at least 90% of their income each year as dividends, the success and profit levels of the trust will determine how much money you receive in return. The more you invest into a REIT, the greater your dividends will be. As with all stocks, the price can fluctuate over time. Although property isn’t seen as high risk as other markets, it’s important to understand that your investment can still fall or rise in value.

To get started in the REIT direction, all you need to do is invest through an ISA or a SIPP since these companies are listed on the London Stock Exchange. If you’re unsure on the differences between the two account types you may want to read our article on them here.

Similar in a way to REITs, property crowdfunding is when fellow investors get together to put money into property. However, rather than buying shares of a company, you are actually buying a small share in a property. What makes this method attractive is that you can kickstart your property investment journey for a fraction of the cost when compared to other routes.

As there are different types of property crowdfunding, we’ll stick with the most common form. Through a crowdfunding platform you invest anywhere from £100 to £1,000 into a property. You then earn money through the property being let to tenants and the rent is divided according to each investor’s share. 

As you’ll technically be in the business of renting, your risks are the same as a landlord, only at a much smaller scale. Your property’s value may fall or there may be times when your property sits vacant, meaning no income is gathered at all.

Performance is very hard to predict even if platforms will estimate how much will be returned. Depending on the platform, you’ll either be paid monthly, quarterly, or annually so it might not be best for those looking for a reliable income. It’s worth keeping an eye out for platform management and managing agent fees who will take a percentage of the total income. You may find cheaper rates on some platforms but be careful to limit your risk if they do not have a good reputation.