In the London property market there are many opportunities for 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 can deliver capital growth as the property’s value appreciates.
Buy-to-let describes the process of buying a residential property with the intent to then let it to residential tenants. Buy-to-let 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 considerations for when looking at buy-to-let as an investment opportunity:
- Mortgage: Buy-to-let mortgages usually have higher interest rates and require larger deposits than residential mortgages
- Area: 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 increase the value of their asset through renovation and conversion, but some investors will want a property that is ready to rent immediately
- Ownership: To share the cost of investment, some people will choose to co-own a property. If a property is held in joint ownership, the owners will need to agree on certain terms
- Stamp duty: From 1 April 2016 anyone purchasing an additional residential property such as a buy to let or second home will be charged a 3% surcharge on each of the stamp duty threshold bands. For help calculating the amount of SDLT you might owe on residential properties, use our stamp duty calculator
- Single or multi-unit: For investors looking to buy several properties, bulk discounts are sometimes available in multi-unit freehold blocks (MUFBs)
- Liquidity: The money invested in property may take a while to access
- Landlord responsibilities: When becoming a landlord, it is important to understand your rights and responsibilities
As well as the costs of a buy-to-let 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.
If you are considering a buy-to-let investment we are here to help. Our residential sales and lettings teams are experts in the local and London-wide property market and can assist with finding the right property for you, and managing your investment.
For additional information read our guide to find out more about buying to let.
Commercial property investment
There are investment opportunities in commercial property, which can be broadly split into the following categories:
- Retail: Supermarkets, high street shops, shopping centres, retail warehouses
- Leisure and restaurants: Restaurants, hotels, casinos, 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 buy-to-let property investments, understanding local demand will help investors make a more informed decision regarding the investment’s 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 describes the action of buying a property 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 include:
- 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, we recommend that you 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.
If you are interested in finding out more about buying off plan, or would like to find out about any off market opportunities, contact our Land and New Homes division.
Buying at auction
Savings can be made when buying a property at auction, as many properties are sold below the market rate. The Government Property Finder tool searches for government owned property available for purchase at auction.
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.
Crowdfunding is a relatively new route into property investment, which provides peer-to-peer pooled property investments for buy-to-let 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 buy-to-let loans provided to borrowers, providing returns on repayment interest
As with property, the value of land can rise and fall as market demand changes. Major infrastructure projects can significantly influence the value of land by increasing demand in a particular area. Keeping abreast with developments in the capital through government and industry sources can provide timely insight that helps identify potential 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 structure 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 increase its value.
If you are thinking about investing in land, our Land and New Home division is available to discuss the benefits and available options.