Property investment strategy questions
1. Am I ready to make a property investment?
Although this seems like a simple question, it is important to have clear investment goals, an idea of budget and your personal finance to make sure it’s the right time to invest in property. While UK property is widely regarded as one of the strongest asset classes, no investment comes without its risks.
Speaking with a property consultant or financial adviser will help you establish realistic goals and payment plans, determining if you’re ready to enter a property investment. But it’s also important to conduct your own thorough research into the economy, property market, the track record of your developer, and development activity taking place in various investment locations before making your decision.
Finally, despite common misconceptions that property investment is time-consuming and stressful when it comes to tenancy management, many developers offer a hands-off, hassle-free service. This is attractive to investors who don’t have the time, or simply don’t want to be overly involved with the day-to-day management of their property. Choosing a developer that offers an end-to-end service could also help you make the decision that you are ready to make a property investment.
2. What is your goal as a property investor?
Investment goals will differ for everyone. Whether your priority is higher rental yields, strong capital appreciation or a combination of both, UK property is a rewarding asset to add to your portfolio.
Property should be seen as a mid-to-long-term investment. Gone are the days of ‘buying and flipping’ to make a substantial quick-win profit. Instead, it is advised to buy and hold an off-plan property, benefitting from capital appreciation over the build period, as well as a consistent stream of rental income when the property completes.
In today’s off-plan property market, purpose-built apartments in prime city centres like Birmingham can achieve capital growth of up to 13.5% over the build period. This property type typically generates a rental yield of 6%. For example, if you purchased an off-plan apartment in our latest Birmingham development for GBP 237,000, when the property completes in 2024, it is forecasted to be worth GBP 268,995 – an appreciation of GBP 31,995 over the build period. The same property would be expected to generate a rental yield of 6% – an annual gross return of GBP 14,220.
Speaking to a property consultant to understand details such as payment plans, predicted returns and management options can help you set realistic expectations for your investment.
3. What type of investment opportunities do you want to get involved with?
Depending on your objectives and financial situation, you may consider investing in different types of property. For example, if your budget is lower and your priority is higher yields, student property might be the right investment for you. As student property is generally smaller in size and only caters to one demographic, they tend to have a lower capital entry point and higher rental yields than residential property. Whereas purpose-built residential property is usually more expensive to purchase, yet has stronger capital growth over time as well as the potential for high rental yields. It is, however, worth bearing in mind that it’s not possible to get a mortgage with student property investment.
Generally, purpose-built property across both the student and residential sectors are more profitable than buy-to-let investments. Buy-to-let property typically refers to older terraced houses on the outskirts of cities, re-purposed by individual landlords to house multiple tenants in attempt to gain the highest return possible.
In more recent years, the most popular property type is purpose-built apartments with spacious rooms, in prime city centre locations and access to first-class amenities, such as gyms, fitness studios, private dining rooms, garden terraces, co-working space and more. Since the start of the global pandemic, there has been a greater focus on these amenities and tenants are expecting more from their homes than ever before. Delivering on these changing priorities is vital for any property investment.
4. What is the cost of your property investment to your budget?
Are you aware of the potential extra closing costs of your property investment? It is important to ask your property consultant up-front about any other associated costs such as service charges, tax deductions, management expenses and maintenance fees. It is also worth considering if you want to furnish your apartment and weigh up the expenses of furnishing it versus the increased rental yield (up to 21% more according to Onthemarket) that you could achieve from furnishing your property.
Another benefit of investing in purpose-built property is that these developments are new and therefore require less maintenance than a traditional buy-to-let. Purpose-built properties are future-proofed to be long-term, sustainable asset which adheres to ESG regulations such as Energy Performance Certificate (EPC) ratings. This means you can avoid costly refurbishments in the future to bring them up to the required ratings.
5. What’s the expected return on your investment property?
It is worth discussing your long-term investment projections with your property consultant to ensure you have realistic expectations of your returns. Reputable developers should be able to give you an idea of the following:
- Predicted capital growth over the build period (off-plan properties)
- Projected rental yield
- Management, service and furniture fees
- Overall market and economy projections
6. Do you have a property exit strategy?
A property investment exit strategy is a means of exiting your investment, either for personal reasons or when your objectives have been achieved. Although it may seem strange planning your exit strategy before you have even made your investment, it is always worth asking your property consultant if they offer exit services to mitigate future stress and give you peace of mind.
7. Do you understand the state of the property market?
With annual house price growth at a 17-year high (9.8% year-on-year increase), now is a great time to invest in property.
Although the UK market has demonstrated its resilience throughout the pandemic, it is important to understand the trends that can affect your investment. Subscribing to a podcast such as the Property Insights Podcast is a good idea to help you stay up to date with the evolving market.
8. What regional and local areas are best to invest in?
- Demand in Manchester city centre is at an all-time high, while number of available properties is at an all-time low
- According to Urban Bubble, in November 2021 rents were up 17.5% on some unit types compared to the same month a year earlier
- In the last 12 months, Manchester’s house prices grew by 8.5%
- Rents in Birmingham were 10% higher than pre-pandemic levels in September 2021
- Birmingham is a prime beneficiary of HS2 and will be the central hub connecting London with the Northern Powerhouse
- In the last 12 months, Birmingham’s house prices grew by 6.7%.
9. Is there competition in your local area for your investment?
Once you’ve established an idea of location and property type, it’s worth researching if there are similar developments in the local area. Competition is healthy and should be seen as an indication that your location is in high demand and your property has the potential to succeed in the local market.
However, you should also make sure your competition isn’t too strong. Identify the unique selling proposition of the development you’re considering investing in with your property consultant or developer. You should be able to understand exactly what the offering is and how it compares to others in the area.
Here are four further questions to consider:
- What is the development’s unique selling proposition?
- How does the development stand out in the market?
- Is the development in a prime central location?
- Does the development offer key amenities such as a gymnasium, co-working space and access to outdoor space?
10. Who will manage the investment property?
Property management and maintenance are key factors that put many people off buying an investment property due to the misconception that it requires hands-on involvement from the landlord. While this is the case for many traditional buy-to-let properties – typically older terraced houses requiring regular maintenance – Build-to-Rent properties have a range of maintenance and management options.
Due to their nature, purpose-built apartments usually have a 24-7 on-site concierge team. For tenant issues such as lost keys, no running water or security concerns, you can rely on the on-site team and enjoy a hassle-free investment. This also provides a convenient, one-touch experience for your tenants.
For tenancy management, many reputable developers have a recommended rental management partner that they suggest as part of your investment process. These rental property partners can offer an end-to-end solution, from marketing your property and acquiring a tenant, to managing their exit and final inspections. Rental property partners can also deal with bigger maintenance issues that can’t be resolved by the building management team.
These options are particularly attractive to overseas property investors, or those who don’t have the time for a hands-on investment.
11. What is your property investment going to cost monthly/annually?
One of the most important factors of making a property investment is knowing exactly how much it is going to cost you. This will enable you to set realistic expectations of your overall return on investment. The key things to discuss with your property consultant with regards to costs and fees are:
- Required cash deposit amount (usually 20%-30% on off-plan properties)
- Reservation fee (typically around GBP 5,000)
- Payment plan (e.g., 20% deposit on contract exchange / 80% on completion)
- Service charges (typically around GBP 3.50 per square foot, per annum)
- Ground rent (typically around 0.01% and capped at GBP 500)
- Management fees (usually around 10% of the property per year)
Two other key things to discuss are mortgage payments, and tax fees such as stamp duty. While property consultants will not be able to advise on these factors, you should always seek the advice of a financial advisor.
With projected growth of 21.5% by 2025, UK property remains one of the world’s strongest markets. But to benefit from the strength of the market, it is important to conduct thorough research into your investment, the wider economic climate and evolving tenant demands.
Here are 3 key trends to be aware of for 2022
Millions of people returning to the office in the second half of 2021 triggered strong rental growth in the UK’s largest urban centres. A key beneficiary is Birmingham, which hit double digit growth since pre-pandemic levels.
2. Greater focus on amenities
As a result of the pandemic, people are expecting more than ever from their homes than ever before. Tenant priorities have shifted, with a greater focus on access to outdoor space, a gymnasium and co-working space to support flexible working.
The government’s GBP 106 billon high-speed railway, High-Speed 2 (HS2), is continuing to impact the market across the country. For the first time ever, HS2 will make Birmingham and Manchester commuter hotspots for millions of Londoners looking for more affordable rent, larger living areas and better amenities.
Select Property Group are a UK leading developer and investment specialist, helping first-time and seasoned investors make the best long-term investments in the UK’s strongest investment cities. To date, we have sold over 2.5 Billion worth of global property since 2004.