Property Investment - Investing In Property In The UK And Abroad

Long Term Tenants Guaranteed

The income derived from commercial property is relatively secure as the properties are let on long term contracts. These contracts or leases can typically be up to 20-25 years with upward rental reviews every five years, which ensures rental yields are kept high relative to current capital values. The key advantage of long term contracts is that void periods are kept to an absolute minimum.

And this leads to....

Secure Growth

Whereas the residential market is influenced by interest rate changes and people's ability to borrow, the commercial sector is not influenced to the same extent by rate changes. The commercial sector is more aligned to the activities of companies (potential tenants) and their ability to keep up payments.

Higher Returns Achievable

In recent years, investment in commercial property has offered relatively high income for investors compared to investment in residential property. Yields of 6 - 15% are commonly available through investment in commercial property - rental yields which are becoming harder to come by with residential property in recent years. Investors who have recognised the benefits of residential buy-to-let are now beginning to realise that commercial properties such as offices and shops offer greater returns and a high income.

Over the last 10 years in the UK commercial property has been among the best performing asset classes - outweighing returns from gilts and equities by
a significant margin.

Tax Breaks

You can sell commercial property at any time, either vacant or with tenants in place. If you own commercial property for more than two years and rent it out to a business, it qualifies for full business asset taper relief meaning that 75% of any capital gain is not taxable. Certain commercial deals (such as this one) are also pension and SIPP friendly.

Diversification

Whether you have invested in residential property, the stock market or another asset form, commercial property is the perfect way to diversify an investment portfolio. This is because it is not affected directly by any of the same factors that other assets classes are.

Well Established Market

The UK commercial property market has a well-established market structure and legal framework which allows for steady growth. The finance market is also beginning to catch up and offer support to the growth of the commercial market. Until recently, most lenders only offered 50% finance to investors looking to invest in commercial property. Now 70-90% finance is available to most investors, which has made the market much more accessible.

Hands-Off Approach

Despite popular belief from more traditional residential property investors, investment in commercial property can be a very hands-off approach. Tenants are typically responsible for fully repairing and insuring your property, which offers more protection for landlords than with residential property.

Tenants will often sign personal guarantees on smaller properties, making rents very secure. Letting agents also manage tenants and rental collection for landlords, which means that once any relevant paperwork has been undertaken, investment in commercial property is very much a hands-off experience for landlords.

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Why The UK ?

There are several reasons why we believe investing in property is, has been, and always will be as good a place for your money as there is out there! Firstly, the worldwide housing market is limited in supply and the population is ever-increasing at an exponential rate. This is true with most local markets as well as demand for housing continues to outstrip supply, pushing prices up and causing cities to expand. Simple supply and demand tells us that as demand grows faster than supply, prices must rise! Of course, investing in the right market and at the right time are integral to your success in property investment. Not all markets are rising, or have good rental returns; but if you are able to find the ones that are, you will do very well in the world of property investment!

Another factor making property investment so attractive for me is the use of leverage. Leverage refers to the use of borrowed money to increase your profits in an investment. Building sustainable wealth and income through property investment will require the use of leverage. Essentially, leverage is the ability to use little money to buy a comparatively expensive asset. Assuming you put down £7500 on a £50,000 investment property. If your property appreciates by just 7% in the first year, it will be worth £53,500 after 12 months. If you now decided to sell this property you will have made a return of £3,500 or 47% in a year - a return you will struggle to find at your local bank or elsewhere! Of course, you would have faced some buying costs - but if investing wisely 6 months rental income should more than cover these. The above is for illustrational purposes only - I would probably have kept the property for a few more years if it was in a good growth area and rental demand was strong. That is unless my money could be working harder for me elsewhere. I would recommend taking a look at our 'Example Investment Properties' page for a more precise calculation of how your money can work for you.

Basic Principles

Picking up the basic principles of investing in property is very easy. There are numerous courses that you can attend that range in price anywhere from a few hundred pounds to thousands for week long courses.

There is also a wealth of information on the internet and in books these days. Property investment knowledge is not something that is taught in schools or at university - most successful investors we work with and know are self taught. I would recommend learning and investing in the way you feel most comfortable with. Some investors are self taught and find their own deals, and others have taken crash courses and pay companies extraordinary fees to find the right deals. Both can work very well, but a reliable source of information is vital. You must also be very careful which firms you are working with - I have come across many firms that offer poor deals, make promises they cannot keep, and have poor levels of customer service.

Strategy is also all important whatever stage of investing you are at. You must define your goals clearly, and stick to looking for deals that can help you achieve those goals. For example, you must decide whether you are looking to build equity or a stream of cash flow. Some investors primarily invest in a holiday home for self use and others will buy scores of properties a month and not visit one! Some investors prefer to invest only in their local market, while others will buy in several high growth areas overseas. Other investors we work with prefer the hands-off approach and invest in funds and syndicates; there are many different possibilities out there. Whatever your goals, I strongly recommend taking the time to define these before starting to invest. One of our team will be happy to talk through your situation, and point you in the right direction.

Types Of Return

Investors can expect two different types of return when investing in property; income and/or growth. If investing for growth or capital gains, investors generally take a longer term view rather than needing more immediate access to capital. During your investing days, your priorities may change depending on your salary and other sources of income. It is likely that you will require income from your investments more so later in life as you work less and less. Planning for income, growth, or a combination of the two, often stems from your tax position, your immediate requirements for cash, and your longer-term plans. Many people construct a property portfolio of investments which offer a combination of income now and future growth. At Bueno Investments we emphasize the importance of income as well as growth as a determining factor in a successful property business.

Taxation

Taxation is also a factor that you must take into account before considering any investment. Unlike other forms of taxation, property taxation is a very complex subject and I would recommend speaking with a property tax specialist if there is anything you are not sure about. For UK residents, the main taxation areas are Capital Gains tax, Income tax, and Inheritance tax. There are also several non-standard Taxes that you must be aware of and new laws being passed all the time which can be a lot to keep on top of. Our advisors will be happy to talk through anything you are not sure about or recommend a property tax specialist.

Using A Good Team

Along with a good tax specialist, it is vital that you have a mortgage broker and solicitor that you are happy with, are competitively priced, and that you work well with. Having a good team in place can save you time and money later down the line, and let you rest assured that they are acting in YOUR best interest. We have several mortgage brokers and solicitors that we can recommend for any UK or overseas deals. We only recommend firms that have been tried and tested and that we work with ourselves.

Specifically, Location, Location, Location

In terms of the UK, there are several locations in the North of England that we are currently very confident offer good value. Growth fuelled by local development is continually pushing up prices in the majority of cites we target. More importantly, high yields are still achievable in certain parts of these areas as the rent-purchase price relationship is favourable for investors. As mentioned earlier, it is imperative to know where to invest locally, and to have a good management / refurbishment team there.