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Key Rules for First-Time Investors in the UK Real Estate

Starting Business
Expert advice and insight on starting, operating, and growing your business
uk real estate

UK property is often compared with reliable investment assets like bonds. Currently, every meter of land in the UK is worth its weight in gold. Real Estate property in the UK is very diverse – from the historic Victorian homes that have firmly stood on the secular foundation for hundreds of years, to the houses with cardboard partition panels that were erected in the 50s-60s. The British real estate market is growing and developing and property prices are gradually rising, which makes the UK real estate market very attractive for property investment.

Let’s have a look at the main types of real estate for investment:

“Classic” Real Estate

It’s common knowledge that there are investments in residential real estates in London and other big cities. Such property is convenient and safe, but not highly remunerative. An apartment in London will not bring you more than 5% of annual income, which is the most optimistic figure. Mostly, you can count on 3-4% per year. However, a “classic” residential property, especially in London, has almost no risks, with good liquidity and regular capital growth.

Commercial real estate in London (shops, hotels, offices, etc.) is also a reliable and profitable asset that can bring 5-8% of annual income. However, entry into this market is not always feasible: the cost of buying a more reliable business is between 500 K (minimum ) to millions of pounds. Because of this reason the UK market has a big demand for small-sum investment property.

“Alternative” Real Estate

You can consider student apartments, hotel rooms, parking lots, warehouses as an “alternative” real estate. All these investment assets are very attractive for first time investors. Such property is highly profitable and the annual income can reach up to 7 – 11%, wherein the threshold for some of the property (e.g. parking space) can cost only £10,000. Student apartments and hotel rooms outside London vary in price from £40,000 to £100,000, which is also affordable for first-time investors.

Minutes of the Meeting for Purchase of Property

Minutes of the Directors' Meeting for purchase of property.

Important Tips for Beginners

Income Security

There are two types of investment properties on the market: with guaranteed income or with predictable income. If you choose to invest into small business real estate (parking, warehouses, hotel apartments, etc.), we recommend purchasing the property with a guaranteed income, even if the property with the projected income looks much more attractive. Unfortunately, there are thousands of cases where beginner investors were unable to obtain the expected return on their investment and sometimes could not even claim their money back. Therefore, if you guarantee fixed rental payments for a certain period of time in your contract, the chance of a full implementation of the conditions will be high. This would also be beneficial in case of a failure to comply with the contracted terms as it will be much easier to prove your rights in court.

Be Sure to Check the Background of the Builder

Unfortunately, some real estate agencies do not have a serious approach when it comes to selecting developers. There have been situations when real estate projects have not been completed or the delivery was seriously delayed or even frozen. Do not rush with making your decision; thoroughly scrutinize the business history of the developer and examine its existing real estate projects.

Home Comparison Worksheet

A document used to compare houses including the must have features, the features they hope to have and the no ways.

Check up Your Paperwork

After making a deposit and signing a letter of appointment from a solicitor, you will be provided with a set of papers. Carefully examine all the documents and do not hesitate to clarify ambiguous conditions of contracts or law terms that are unknown to you. If you are going to work through an agent, ask him to clarify which documents and clause mention guarantees, liabilities and other conditions are important for you.

Pay Attention to the Management Company

Choosing the right management company is very important because it will reflect on how well your property is maintained. An inexperienced management company can ruin your investment project. If you have noticed that the management company is not professional and creates problems, it is better to spend money on changing such company as soon as possible rather than sell your assets later at a loss.

The Exit Strategy

Perhaps you are sure that your investment will increase in value, but the guarantee is never superfluous, especially in this niche. Prepare your real estate exit strategy before you buy. There is no golden rule for each particular scenario so, your exit strategy will depend on many factors, such as experience level, short or long-term goals, purchase price, property value, market conditions, tax situation and many more. Ideally you should know when you plan to sell from the moment you buy.
It is important to note that there is no right or wrong strategy; however, the importance of an intelligent real estate exit is never to be underestimated.

Sale of Commercial Property Contract

A contract between the Seller and the Purchaser that sets out the terms in regards to a commercial property.

The UK Property Investment Market is Very Diverse

Every price category corresponds to the type of real estate, a certain level of return and risks. The threshold of the investment entrance is relatively low for an “alternative” real estate and high enough for the “classic” one. Every niche on the real estate market is in high demand and profitable. In order to achieve the capital growth for investing in property you should consider your goals, scrutinize your investments, look for better mortgage deals to switch to, check whether it is time to release some equity and re-invest and to run your business in the most tax-efficient way possible. The success of your investment will depend on when you buy and when you sell.

Starting Business Expert advice and insight on starting, operating, and growing your business
As industry leaders for corporate solutions, StartingBusiness provides a broad range of high-end administrative and financial services to a global network of corporations and entrepreneurs from all around the world.
As industry leaders for corporate solutions, StartingBusiness provides a broad range of high-end administrative and financial services to a global network of corporations and entrepreneurs from all around the world.

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