Although it may rise and fall in the short term, we can be pretty confident that commercial property and residential house prices will increase in the long run.
The fact that property prices have increased by 1010% since 1980, 24 times the annual salary growth rate over the same period, is proof of this. For this reason, long-term property investment ensures net capital growth.
To help you launch your property investment portfolio, we have answered some of our clients' frequently asked questions.
Is it worth investing in property?
There are several advantages to investing in property, including:
- You can generate income from rents and capital gains when you sell your investment
- Unlike stocks and shares, property is tangible and easy to understand
- Property investment allows you to diversify your portfolio
Investing in property is also fun, especially if you are a creative person that enjoys home renovation and property development.
How much should I budget when investing in property?
If you need to get a mortgage, you need to factor in at least a 25% deposit plus a higher interest rate when compared to mortgages used to finance the purchase of a family home. Many property investors are cash buyers.
Therefore, be prepared to miss out on properties for those who do not require finance. If you are persistent, the ideal buy-to-let property will become available.
Also, when purchasing a buy-to-let property, stamp duty land tax is 3% on top of the standard rates.
Like all investments, investing in real estate comes with risk. Tenants that do not pay rent on time (or at all) cause property damage, floods, fire, and many other events that can affect your ability to make a return on investment.
It is imperative to make sure that you can cover the mortgage payments out of your funds and pay for any repairs. Furthermore, it is crucial to have the right property insurance coverage.
What are property ‘yields’?
The ‘yield’ is the annual return you will likely make on your investment property. A rental yield is calculated by dividing the yearly rental income by the property's value and multiplying this figure by 100.
This will give you a gross yield percentage. The net yield percentage is calculated by subtracting the property’s yearly operational costs from its annual rent and then dividing this by the property value.
A good investment yield is generally considered at or over six or seven per cent. Anything under that may result in you not having enough cash flow to cover unpaid rent, repairs, or unexpected costs (although if you follow the advice regarding budgeting above, you should be able to pay for these out of your own funds).
Do I need a property law solicitor?
Accessing quality legal advice is essential to build a property investment portfolio. Your property solicitor will advise you on everything from acquiring and disposing of properties to drafting tenancy agreements and dealing with problem tenants.
The commercial and residential property market is changing. For example, the former has been hit hard by the move to hybrid working, which has lessened the demand for large commercial premises.
Residential property investments are facing significant statutory changes, including the proposed abolition of section 21 notices and the requirement for landlords to allow tenants to have pets.
Building a relationship with a solicitor from the beginning of your property investment journey will ensure you have someone to guide and support you through every stage of a property transaction and tenancy.
Commercial property investment legal advice
Should I use a letting agency?
Investing in a property portfolio is demanding in terms of time and energy. Some tenants are easy to manage, and others will be difficult.
Working with a reputable letting agency will remove the need for you to deal with tenant issues, chase unpaid rent, and manage property damage and/or anti-social behaviour. A letting agent will also find and screen new tenants on your behalf and organise the tenancy agreement and schedule of conditions.
Is it better to invest in property or stocks?
The ideal option would be to have investments in property and stock. However, the best choice for you will depend on whether that is feasible.
Stocks and shares often outperform property in the long term, attracting considerable tax advantages. You can spread your risk by investing in shares, government bonds, gold, commodities etc.
The downside is that you are at the mercy of not only the economy but also how a particular company is managed. If you need to access returns within a short timeframe, investing in stocks is pointless as you need to give your investments time to grow (unless you opt for super high-risk opportunities in the stock market).
On the other hand, property is reasonably stable – in the long term, it always increases in value.
You can also make money from rent as well as profit from doing up the property and selling it. The downsides of property investment are that rental income is taxed, and you may be subject to capital gains tax if you sell up.
In addition, if the property market tanks, you may be stuck with an investment you do not want or cannot afford.
Get legal assistance from LawBite
Building a relationship with a solicitor from the beginning of your property investment journey will ensure you have someone to guide and support you through every stage of a property transaction and tenancy.
To find out how our property law and commercial property solicitors can support you, book a free 15 minute consultation or call us 020 3808 8314.
Additional resources
- Understanding commercial property insurance
- Property development crowdfunding – what investors need to know
- Beginners guide to leasing commercial property
- What is a commercial property rent review
- Landlord and tenant responsibilities for commercial premises
- How to change a residential property to commercial
- How to lease commercial retail space
- Carrying out alterations to commercial lease premises
