The London property market offers a number of opportunities for private property investment. Depending on the needs of the investor, property investment can be a short or long term endeavour used to generate income, add to a retirement fund or deliver capital growth as the property’s value appreciates. Property investments are usually considered stable as apartments and office blocks aren’t directly traded on an exchange. This eliminates volatility and safeguards the property sector from daily swings in value.
Buy-to-let (BTL)
Buy-to-let describes the process of buying a residential property with the aim to let it to residential tenants. BTL investments can generate short term rental income, providing the revenue covers any mortgage payments and other costs, such as general maintenance. These investments can also return mid to long term profits through capital growth, providing the value of the property appreciates.
There are a number of factors to consider when looking at BTL as an investment opportunity:
Mortgage: BTL mortgages usually have higher interest rates and require larger deposits compared with residential mortgages
Location: Different areas command different rental yields and capital growth. Investors may choose to focus on an area where property prices are rising but rents remain steady, or vice versa
Condition: Investors can potentially raise the value of their asset through renovation and conversion, but some investors look for properties that can be rented out immediately
Ownership: Some people will choose to co-own a property in order to share the cost of investment. The owners will need to agree on certain terms if a property is held in joint ownership
Stamp duty: From 1 April 2016 anyone purchasing an additional residential property such as a BTL or second home will be charged a 3% surcharge on each of the stamp duty threshold bands
Single or multi-unit: Bulk discounts are sometimes available in multi-unit freehold blocks (MUFBs) for investors looking to buy several properties
Liquidity: The money invested in property may take some time to access
Landlord responsibilities: It is important to understand your rights and responsibilities when becoming a landlord
Apart from the costs of a BTL mortgage, there are other factors for investors to consider when making their financial plans. The properties will require upkeep and budgets should anticipate void rental periods.
Commercial property investment
Commercial property offers investment opportunities, which can be broadly split into the following categories:
Retail: Supermarkets, high street shops, shopping centres, retail warehouses
Leisure and restaurants: Restaurants, hotels, cinemas, leisure and fitness centres
Office: Offices and office parks, mixed use and multi-tenant buildings
Industrial: Warehouses, sheds, storage yards, industrial, manufacturing or logistic units
As with BTL property investments, understanding local demand will help investors make a more informed decision regarding the private property investment potential.
Commercial property is a specialised area, but it is possible to invest in a fund, which is managed on the behalf of the shareholders, so expert knowledge is not essential. Commercial property investment options include:
Direct investment: Buying a share or all of a commercial property
Direct commercial property fund: A collective investment scheme that invests in a portfolio of commercial properties
Property stocks and shares: Individuals can buy and sell shares on the stock market in listed property companies
Indirect property fund: A collective investment scheme that buys shares in stock market-listed property companies
Buying off plan and buying off market
Buying off plan is a type of private property investment before the development is complete, and in some cases it may not have even been started.
There are two completion dates to be aware of when buying off plan: The short stop, when the developer expects the property to be finished; and the long stop, when the property must be finished.
Advantages of buying off plan:
Deposits for unfinished new builds may be cheaper than those on completed properties
You can often influence design features, fixtures and fittings
Purchasing the property at a fixed price before completion means you can benefit from inflation on 100% of the property’s capital value
There may be discounts available for bulk purchases, which can act as a safeguard against potential market deflation
In some cases, you may choose to sell on the purchase before it has reached completion; this process is known as flipping contracts. In order for this to be done the contract must be assignable. You should check this prior to proceeding with a purchase of this nature.
Off market buying refers to private sales that are not advertised online or in marketing materials – either through an agent or directly with the property owner.
Buying at auction
You can save on your private property investment by buying a property at auction, as many properties are sold below the market rate.
A winning auction bid constitutes a legally binding contract, so it is important to conduct thorough research of any properties of interest and have your finances ready ahead of the auction itself if you intend to make a bid.
Property investment through crowdfunding
Crowdfunding is a relatively new route into property investment, which provides peer-to-peer (P2P) pooled property investments for BTL properties. The two primary types of crowdfunding are:
Equity crowdfunding: Pooled investment in rental property developments which are purchased by a management company, providing returns from rental income and sometimes capital gain
Bridging finance or lend-to-save: Investment into short-term BTL loans provided to borrowers, providing returns on repayment interest
Investing in property by buying land
As with property, the value of land can rise and fall depending on market demand. Major infrastructure projects can significantly influence the value of land by increasing demand in a particular area. Staying updated with developments through government and industry sources can provide timely insight to identify potential private property investment opportunities.
In London, most land has already been developed at some point. This means that most vacant plots that become available will have had a previous use, and many will still have some form of development in place. Depending on the previous use and any remaining structures, this may add to any redevelopment costs.
Some land may have pre approved planning permission, which can raise its value.
