If Your Looking to Invest in Real Estate in 2023 …

… here is Everything You Need to Know!

If you are due to receive a bonus in 2023 or have a lump sum of savings that you want to work harder for you, especially given the inflation rates and potential recession, perhaps you should consider investing in a buy to let property and start expanding your property portfolio for better returns and a potential additional stream of income.

We’ve put together some of the key aspects you need to know about if you are considering purchasing a property investment as well as highlighted the main benefits of investing in real estate.

Buy as an Individual or in a Limited Company

If you’re considering building wealth over the next 5 – 10 years, you may want to consider setting up a Limited Company for a number of reasons. One big reason is, minimising your tax bill, especially if you are a high income earner on £100k and over. Paying 40% + tax on ALL income earned may end up stalling your growth plans. If you have a  property that is generating income and building cashflow month on month, it sits in the company and you re-invest in future. As long as you don’t draw on it as income, you can buy your next property in a short space of time. Keep in mind though that limited companies that make a profit pay corporation tax at 19%.

Location, Location, Location

When it comes to choosing where to buy your property, it is very important to pick the right location. The Stonelink International philosophy is; “Pick the worse property, in the best street, in the ideal location.”

We recommend choosing an area that is popular with plans to grow from future regeneration projects that will add value to the location, an area that is well connected for commuters or an area that is considered a property hot spot.

If you were to choose an area where people don’t necessarily want to live, your investment could end up costing you money due to void periods where the property is left untenanted.

If you were to choose a new build, you may want to factor in the premium the developer will charge on the sale price, along with the high services charges and ground rent and what key factors the Head Lease includes if the purchase is a leasehold.

Depending on the type of tenant you’re targeting you may want to consider things like local parks, shopping districts, restaurants and nightlife, as well as reputable schools. Choosing the right amenities, in highly sought after areas will make for consistent rental income and a great return on your investment.

We actually have access to more properties than most of the usual portals, including visibility of off-market properties. Have a look at our homefinder.

Finances

Before committing to a long term property investment, you need to work out the finances. As well as the initial downpayment and cost of the property itself, you’ll also need to factor in additional costs like repairs and taxes, which include, stamp duty land tax, which is paid on buy to let investments.

If you’ve managed to purchase a property and are in the process to complete before the end of March, you will benefit from the stamp duty holiday and be able to save a considerable amount on your property investment.

You will also have to pay tax on the rental income you earn, and capital gains tax that is payable on any profit you make when you sell the property in the future.

Property Management

Building a property portfolio might become your  full-time job so you may not need to hire a property management company as you will have the time to manage the properties themselves.

However, if you are short of time and don’t want the added stress of finding tenants, completing documentation and covering any maintenance issues, we recommend hiring a reputable property management company to do it for you.

Benefits of Investing in property

1. You have direct charge of your property portfolio

As an investor you can decide on your property investment strategy from what properties you are going to invest in (off plan properties, buy to let property, commercial property), the area, the type of property, which tenants to rent to, how much rent you want to charge and how the property is managed.

You can also choose how how hands-on or hands-off you want to be. Some investors choose to be very hands-on and manage their portfolio themselves while others who have multiple properties tend to outsource the property management of their rental properties to property consultants who will advise on sourcing the right property to finding the right tenants and supervising ongoing maintenance and repairs.

When you buy investment properties you also acquire physical land or property, ie a tangible asset.

2. Leverage

Investing in property means that you can secure leverage, a loan or mortgage in order to maximise your own investment. For example you can take equity out of one property once it has had a certain level of capital growth and use those funds to either improve or extend the property to further increase its value or out the money towards another investment property.

You are unlikely to be able to secure a loan from a bank in order to increase the amount of money you have to invest in equities, in contrast, compared to investing money in UK property.

3. Income

The return you receive from property investment is split into capital appreciation and cash flow.

Most property investors make money by collecting rent (which can provide a steady income stream) and through appreciation, as the property’s value goes up compared to the property purchase price.

Capital appreciation is the increase in value of the property itself and cash flow is the profit you make each month from rent. If you are investing wisely, as well as improving the value of the property over time, you should also receive a positive monthly income. Even taking into account void periods, this income is steadier than other forms of investment.

This is one of the main advantages of property investment. Usually due to high tenant demand you can expect a stable and increasing income on a regular basis. This is great if you are looking for some passive income or are retired.

Something to bear in mind is that you may experience instances of rent arrears or void periods between tenancies, which is why a less riskier strategy is to try and have several properties in your portfolio, ideally under a property company or property business structure for tax relief.

You should also think about the income compared to the value of the property. This gives you the gross rental yields, and is a way to compare different investment properties vs other types of investments.

Don’t forget that income from properties is taxable as income, which can mean you must pay corporation tax at 20%, 40% or higher.

4. Instant gain on your Investment

If you purchase property at below the market value you will, in many cases, instantly add value to your investment simply by buying cheap or run down physical property in the UK.

When you buy an off plan property you can also negotiate with the property developer for a lower property price compared to buying a property through estate agents and therefore make profit from selling at a higher price or through rental yields.

5. Increasing value

Unlike other investment vehicles, investing money into the property sector is a valuable investment where the value can increase significantly compared to the UK stock market.

This is particularly true if you invest in an off plan property or in an area that is developing or regenerating where property prices are very likely to rise.

6. Hedge against Inflation

Investing in property is how as an experienced investor you can hedge against inflation. With high inflation, as we are seeing in current times, your rental income and property value are likely to increase significantly. As the cost of living goes up, so will your cash flow, which will help you make more profit after you have accounted for mortgage repayments and maintenance costs.

So when weighing up whether to invest in buy to let property or property funds, some advantages are definitely the direct control you have as the property owners, the fact that in then UK, properties have generally increased in value over the past 50 years and the high tenant demand fuelling property developers to seek new property development sights to meet the rising UK property market.

However the flipside are the taxes, for example if you sell a second home, you will have to pay capital gains tax (CGT) on any increase in its value since you acquired the asset.

Also its not as easy or quick to liquidate or sell a property compared to shares, for example.

How can we help you today with regards to sourcing a buy to let property, where to buy a house in London or beyond?

Speak with your experienced property consultant’s now. Call direct on + 44 (0) 207 993 4081 or simply send an email for a fast response.