Property Investment Frequently Asked Questions - FAQs

Below you will answers to the most common frequently asked property investment questions

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FAQs

What is property investment?

A property investment is simply an investment strategy whereby an investor purchases a property in order to make money from it utilising different strategies, which include, but not limited to, rental income from tenants and or profits from selling when its value has increased.  

What is an investment property?

Numerous types of property can be used for investment purposes and as an investment property, including residential flats and houses, student homes or purpose-built student accommodation, holiday homes, commercial buildings for offices, warehousing, schools, social housing, and care homes.

What is a buy-to-let property?

When you invest in a Buy to Let property, you purchase the property and become the landlord, renting it out to suitable tenants and collecting rent payments. To make a profit, these rent payments have to exceed maintenance costs, agent management fees (if applicable), and mortgage repayments.

Why invest in property?

Investing in property offers various advantages, including tax benefits, passive income, portfolio diversification, capital appreciation, a hedge against inflation, cash flow, retirement planning, and overall wealth building.

What does Below Market Value (BMV) mean?

Below market value or BMV simply means that a property is being offered at a price or has been purchased at a price below the current market value for that particular property.  For example if a property would be worth £200,000 if offered on the open market but is sold for £150,000 then the purchaser has purchased at £50,000 below the market value.  Investors must consider the difference between a property marketed at BMV or one that is over priced for the current market value, this is where due diligence is important before agreeing a purchase price.

What is a NET yield?

NET yield refers to the yield after deducting any costs associated with that income, such as fees, commissions, rates, repairs, and overall running expenses. In property terms you receive your rent each month, which accumulated over a year provides you with your GROSS Yield, after all associated costs have been taken into consideration you are left with your NET yield.  Typically, “net yield” is used for yield calculation purposes.

What is capital appreciation?

Capital appreciation in relation to property investment is a rise in the property's market price. Capital appreciation is the difference between the purchase price and the selling price of a property. If an investor buys a property for £100,000, for example, and the property value increases to £150,000, the investor has earned £50,000 in capital appreciation. When the investor sells the property, the £50,000 earned becomes a capital gain.

What is an assured shorthold tenancy?

An assured shorthold tenancy is the standard legal agreement for residential tenants in England and Wales.  It is normally a minimum of 6 to 12 months but does not have to have a fixed term, and in some cases can become a periodic tenancy with no set end date with the tenants and landlord being subject to the terms and conditions of the AST on a monthly basis until either party giving notice to end.

AST agreements were introduced by the Housing Act 1988, the assured shorthold tenancy has become the most common form of arrangement between a private residential landlord and tenants. The equivalent in Scotland is the short assured tenancy.

What is property sourcing?

Property sourcing is exactly what it says, the act of sourcing a suitable property for investment.  However in the property investment sector, generally a property sourcing agent is the middle man between the investor and the property/land available, with the 'property sourcer' finding the right investment or deal that fits their clients (the investor) criteria.  They will then package up the 'deal' and present it to the investor taking a fee for their service in finding such a deal.  Simply there are several ways a property sourcer will work, firstly they will source a property or investment deal, which they will 'package' and 'sell' to an investor, and secondly they will have an investor already, and upon understanding the investors requirements, they will 'source' the perfect property/deal, in both cases taking a fee for services provided.

It is an area of property investing that requires little monetary investment on the property sources' end, with them making money from the act of finding the right deal for investors, which frees up the investors time to do other things.  The investor will also put their faith in the property sourcer to find suitable deals which are below market value, providing the basis for a good investment.

What is a resale property?

The term resale property can mean several things in the property sector, firstly resale homes from an investment point of view are properties that have been previously owned and probably rented out, that the owner now wants to sell to release their capital to potentially invest in something else.  In this regard resale properties can be a good investment to consider as they can potentially provide an income straight away (if they are still tenanted) as they are completed with little to no work required from the new investor/owner.  You can also find some good deals when considering resale properties due to the fact that in some cases the current owner may want a quick sale forcing them to consider below market value offers.  

The term resale property can also relate to previously owned shared ownership homes, also known as ‘resales’, this is where the person buying would buy either the percentage that the current owner has purchased, or more, up to a maximum of 75% of the shared ownership property. 

What is an HMO?

House in Multiple Occupation (HMO). However the property does not have to be a house, it can be a flat, or other property type. The term relates to multiple households/people not from the same family living in the same property. Normally each resident has a separate rental agreement with the landlord.  The tenants will have their own bedrooms and then share facilities like the kitchen, lounge, and bathrooms, sometimes bedrooms may have en-suites.  HMO's became popular as an investment strategy due to landlords being able to make more money from a single property, and at the same time rents for each tenant are generally lower than having to rent an entire property.  HMOs are popular with young single professionals, especially when moving to a city for work, providing cheaper accommodation and at the same time the potential to meet new people (other residents in the HMO).  HMOs have been the subject of tighters regulations in more recent years to ensure landlords provide good quality accommodation to tenants, and at the same time respecting the wider community where the property is located, with some councils making HMO licensing mandatory, and also setting limits on the number of HMOs in a particular area.

What is the difference between Freehold and Leasehold?

Freehold means to own a property and the land it's built on.  There is no time limit to ownership under freehold. A leasehold means to own a property for a fixed period of time, with lease agreements normally being between 250yrs-999yrs (but can be less), and leasing it from the person or company (landlord) who owns the whole building or land it's built on.  A good example of leasehold properties in the UK are apartments, where you can buy the apartment or flat but you don't own the whole building, however, you can also find leasehold houses in the UK where they have common or shared ground, sometimes looked after by a groundskeeper.

What is a service charge?

A service charge is a fee paid by the leaseholder to the owner/landlord of a property for the services the owner/landlord provides under the obligations of the lease.  These services normally cover the cleaning and maintenance of communal areas both inside and outside the property.  The fee is normally split between the leaseholders and can increase or decrease depending on the costs incurred by the landlord or freeholder over the course of a year.

What is purpose built student accommodation (PBSA)?

PBSA stands for purpose-built student accommodation. This is accommodation specially built for students to live in. Purpose built student accommodation is a relatively new investment strategy allowing for an investor to purchase a room or whole block of apartments to rent to students.

Can I invest in UK property from overseas?

Yes, nearly anyone can purchase property in the UK from any country, with no restrictions or visa requirements unless you are considering moving to the UK and living in the property.  

What is an off-plan property?

The term off plan means a property that has not been built yet.  In investment terms buying off plan can provide significant discounts and 'deals' for investors as the value will generally increase as the property is being built.  Selling off plan provides both security and early funding to the developer, however, investors must appreciate the risks involved in purchasing off plan such as developers going bankrupt due to rising building costs, leaving early purchasers without a property or means to recoup their money.  

What is a guaranteed return?

A guaranteed return in investment terms is where a fixed return (percentage or amount) is promised or 'guaranteed' each month/year.  There are lots of examples of guaranteed returns in the property investment sector, however as appealing as a 'guaranteed return' sounds from a security and low risk point of view, the investor has to ask how and why is the agent, developer or seller offering a 'guaranteed return'.  A guaranteed return is different to an 'assured return', with an assured return, the fixed percentage or amount is suggested as potential but not guaranteed or promised. 

What is commercial property?

Commercial property is any property or land that is not used for residential purposes.  Examples of commercial property would be hospitals, offices, warehousing, garages, hotels, shopping centres and shops, farms and farm land.

What is a short term let?

Very simply a short term let is a property that is offered for rent for a period of time less than 6 months, and can be available for as little as a single night.  Short term lets have become a popular investment asset class and strategy providing lucrative returns for investors as long as demand and occupancy rates remain high.  Examples of short term lets include furnished holiday lets (see below), serviced accommodation and self contained annexes.

What is a furnished holiday let?

A furnished holiday let is a property that is fully furnished and then let out normally for shorter periods than a normal buy-to-let rental property for people to use for short breaks.  They are normally located in areas of high tourism or unique quieter areas.  There are stipulations to furnished holiday lets for them to qualify such as:

• ​​The property must be available to let for a minimum of 210 days per year.

• It has to be let for a minimum of 105 days per year.

• Individual lettings exceeding 31 days in a row must not be more than 155 each year.

What is a Purchase Option?

A purchase option is a particular contract between a property/land owner and a potential buyer which allows the potential buyer the exclusive 'option' to buy the property/land for a agreed upon price within a fixed period of time.  During the fixed period the owner is not allowed to sell to other parties but the buyer is also not obligated to buy.  Generally the purchase option allows the potential buyer time to do their own due diligence before finalising the purchase.  Purchase options must be assignable meaning if you do not want to take the offer presented within the agreed time you can pass the offer/benefit to another party.  

What is a Reservation Fee?

A reservation fee is a fee payable at the point of reserving a property in order to take it off the market and is security for both buyer and seller.  The reservation fee is usually non-refundable if the buyer does not proceed with the sale, and gives the buyer exclusive rights to purchase the property within an agreed time frame.  A reservation fee is not the same as a deposit, although in many cases the reservation fee will make up part of the deposit when payable.

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