What is property investment?
Property Investment is one of the most common investment types and involves purchasing a real estate property and either renting it out or reselling with the intention of making an increased return on the initial investment (deposit) or purchase price. There are many different types of property investment, some of which include Residential Buy To Let, Student Lets or PBSA, Furnished Holiday Lets, Flipping for Profit, Rent to Rent and Commercial Property. Investment properties can be both a short or long term strategy, and can be purchased by individual investors, groups of investors or companies.
What is a buy to let property?
A buy to let property is one that is bought with the intention of renting out to tenants or holiday makers to generate an income for the landlord/owner. There are a variety of types including student buy to let, holiday let and Assured Shorthold Tenancy lets (Most common form of rental…e.g 12 month tenancy).
Why invest in property?
Is UK property still a good investment? The short answer is yes, but there are many factors and reasons why 'bricks and mortar' and the UK property market is still the number one choice of investment for many an investor. Some of these factors include the projected house price predictions for the next 10 years, regeneration areas, low interest rates, increasing population and undersupply driving demand, foreign investment into the UK and rising rents. Other personal reasons to invest in property are the fact you have the choice what to invest in, and how to invest, be it buying outright or utilising leverage by borrowing from a bank (mortgage), there are multiple revenue streams including rent and capital appreciation, and owning property is a good way to hedge against inflation because as cost of living increases so does your rent and generally your property value.
What is a NET yield?
Net yield is the annual profit (income minus costs) generated by an asset, divided by its price. It is very useful for investors to know as it gives a true picture of their actual returns as appose to a gross yield which doesn’t factor in costs and can be slightly misleading when viewing a properties financials.
What is capital appreciation?
Capital appreciation, sometimes referred to as capital growth, when talking about property, is the amount, or value, that the property goes up over time. If your property increases in value this is called the ‘capital appreciation’. It is obvious to mention that the value of a property can also go down, or depreciate.
Should I be looking for yield or capital appreciation?
This is not a question that can be answered in a single sentence. Everyone investing in property is looking for something different in terms of strategy, and their requirements or needs, ie what they want to achieve from investing in property. In many cases however rental yield and capital appreciation, (capital growth) are both important, so considering the potential for both is generally advised, especially when starting out. For more information on what strategy would be right for you please speak to one of our investment consultants on (+44) 01244 343 355 or email email@example.com
What is property sourcing?
This is when an agent and/or company sources investment property deals and negotiates with the developer or owner on behalf of an investor. As an investor, working directly with a property sourcing company or agent can be a great way to find exclusive deals, off market properties, and to help grow your property portfolio without having to spend the time and effort yourself to ‘source’ those opportunities that are right for you and your strategy.
What is a resale property?
A resale property is normally completed, previously owned, and is now up for sale again. Investors will typically look to sell their property when they need to release their capital from the investment, sometimes resale property can be purchased with an existing tenant in place and under market value. You can find out more on resale properties from our Ask Johnsy video blog here
What is an HMO?
An HMO, or House in Multiple Occupation, is a type of accommodation that is rented by a minimum of 3 tenants or more, who are not from the same household, but sharing the facilities, for example the kitchen, toilet, bathroom and sometimes the lounge. Generally, tenants in an HMO will have their own bedroom/lounge which will be private and secure, and then the rest of the house will be shared with the other occupants.
What is the difference between Freehold and Leasehold?
There are differences to leasehold and freehold property and you should know these before considering buying any investment property. Firstly freehold means that by owning the freehold then the owner owns both the property and the land that the property sits on. As a side note, due to the civil aviation act of 1982, if you own the freehold of a property you will also have rights of ownership to the ‘airspace’ up to approximately 500 feet above the property. Owning the freehold means it will be your name on the land registry as owning the ‘title absolute’. The majority of houses in the UK will be sold and classed as freehold, though there are some, particular with new build developments, leasehold houses.
Leasehold means that as a leasehold property owner you do not own the land that your property stands on, and you will most certainly have a lease from the freeholder, whereby you will lease to use the property for a set period. Normally leases are for periods of between 125 – 999 years, however check the lease period before purchasing a leasehold property, especially if it is a resale property, as the leaseholder may not have extended it. It is normal to pay ground rent and a service charge to the freeholder which is to cover works needed to be carried out to the communal areas and externals of the building. The majority of flats and apartments in England are leasehold, whereas the rules in property law are different in both Scotland and Ireland. If you would like to learn more please read our blog on freehold and leasehold, which also outlines the pros and cons, here.
What is a service charge?
If you own a leasehold property, you're usually required to pay a service charge to cover the maintenance costs of the building either you live in or rent out. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, porters, and lighting and cleaning shared areas. Service Charges are set by the freeholder and can go up or down each year depending on what the annual costs are. For more information on leasehold versus freehold please read our blog here
What is ground rent?
Ground rent is a fee leaseholders must pay to the freeholder of a building/plot of land as a condition of their lease for the land their home is on. Rates vary significantly but most are now set at 0.01% of the property purchase price and increase with inflation every 5 to 10 years. Typically, this is an annual payment but it can also be done monthly or quarterly.
What is purpose built student accommodation (PBSA)?
PBSA or Purpose Built Student Accommodation is a particular style of housing scheme built specifically for students, generally comprising of self contained studio flats with their own kitchens, en-suite bathrooms, bedrooms and living areas, some will have ‘cluster’ flats with shared living spaces. Many purpose built student accommodation developments will also have communal facilities such as a gym, cinema room, laundry rooms, car parking and on-site management. The developments are often built by independent property developers as they rapidly became one of the UK’s most popular investment opportunity to private investors. Many students are choosing PBSA as a preferred choice over campus accommodation due to the privacy and security.
Can I invest in UK property from overseas?
Yes. Providing there are no restrictions set by either the UK or overseas countries authorities. Personal checks such as AML (Anti Money Laundering) will also be carried out by solicitors to ensure you are eligible but it is incredibly rare for someone to not be able to invest in the UK.
What does it mean to buy an off-plan property?
Buying an ‘off-plan’ property means to purchase either before the building work has started or during the build stage, in short buying before it is built. Many investors look to buy ‘off plan’ properties with the aim of making considerable capital gains through either buying below market value, or by the increase in capital appreciation in the value of the property during the course of the build. Also the earlier you buy then you will have a better selection of unit if considering an apartment or house in a popular development. It is common nowadays for popular investment opportunities to ‘sell out’ before the completion of the build.
What is a guaranteed return?
A guaranteed return or guaranteed rental return in relation to investment property means that a specified company, normally the developer or freeholder will pay a fixed agreed amount of rent to the investor for a fixed period of time. This will secure your cash flow for the duration of the rental guarantee period. This will also mean you will receive your agreed rent even if your property is empty. Our blog article on rental guarantees explains the pros and cons in more detail here
What is commercial property?
Commercial property, although technically this can refer to any property that has been purchased with the intention of generating a profit, including residential property, in the UK, the term commercial property relates to any property that is used for business or healthcare activities. The different types of commercial property include warehouses, factories, hotels, restaurants, cafes, shops, medical centres, hospitals and nursing homes.
What does FHL stand for?
The term FHL in property terms generally stands for Furnished Holiday Lets. An FHL is a specific rental classification where a furnished property is available to let, generally on a nightly basis, and can allow owners certain tax advantages/benefits. To qualify for FHL status there are certain criteria your property must meet, including the following: 1) The property must be available to guests for a minimum of 210 days per year. 2) The property must be rented out as holiday accommodation for at least 105 days of the 210 days it was available. 3) If the property is let out for more than 31 days to the same person there should not be more than 155 days of this type of long term occupation.
What does STL stand for?
STL in the property sector generally stands for Short Term Let. An STL or Short Term Let is any letting agreement that lasts less than six months, and can be as short as 1 night. Short Term Lets have become very popular allowing landlords to rent their properties to holiday makers, travellers and corporate clients wanting to stay for shorter periods than an AST or long term let will allow.
What is a Purchase Option?
In general property purchase terms, under a purchase option contract, the interested buyer pays the seller an amount of money to be given the exclusive rights to purchase that property within a fixed time period, and for a pre-agreed, fixed amount of money. The buyer must purchase the property by the end of the holding period or they waive the right to buy for the agreed amount. The time period is agreed between both parties, but normally it will be between 6 months and 1 year. The amount payable for the purchase option can also vary, and can be as little as £1.
What does BMV mean?
BMV, or Below Market Value, is a term used to describe a property that is being marketed at a price below the current market value for similar sized properties in the same location and condition. For example if all 2 bedroom properties on a particular street were being purchased at £100,000 and a similar sized property, in the same condition, and street, was marketed for £80,000, then this would be considered to be BMV. In reality it is very difficult to find BMV properties, because it stands to reason that most sellers want the most out of their sale.
What is a Reservation Fee?
An amount of money paid to a seller, or their sales agent, to reserve a property (take it off the market). This is normally deducted from the total amount payable for the property. If it is not part of the total amount payable, and is an additional fee, it is normally referred to as an admin fee or finders fee. Sometimes an admin / finders fee can form part of the reservation fee and is retained by the agent to cover their up-front costs.
What is a Finders Fee?
An additional fee charged by an agent. This can range from a standard admin fee of £500 to £2,000 or can be much higher where deals have been specially sourced. This usually occurs where there is not enough money in the sale in order to pay the agent to cover their costs (or give them their usual required margin).
Why pay a Reservation Fee?
A reservation fee is normally payable before contracts are signed for a property, and the main deposit is paid, the seller will incur costs such as legal fees to have the contracts issued to the buyers solicitor. If there is no commitment from the buyer, the seller risks being left to cover these costs, therefore, a non-refundable reservation fee is collected as a commitment from the buyer to buy the property.
Additionally, in a fast selling property development, taking a property off the market may force subsequent buyers to settle for their 2nd or 3rd choice. If there is no commitment from the buyers side, future buyers will never have a true understanding of what is available and what is actually sold.
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