How much do you need to invest in property?
If you are thinking about starting out in property investing, there will be many important questions on your mind. We know, because we have been there ourselves. It may be that one such question is: how much do you need to invest in property? A genuine answer is not straightforward, so stay with us as we explore this fundamental topic.
What are your goals?
Before we get stuck into the nuts and bolts of property investing, it will be necessary to introduce you to your own expected goals and outcomes. Why? Because it will be different for everyone. What one person will expect to gain from property investing will be different to the next person, and this will determine how much you will need to invest. Let’s look at some examples.
You may feel that earning a good enough rental income to cover your bills and expenses will suffice. How much is enough will vary greatly. You may wish to build a property portfolio as a retirement plan. Or perhaps, rather than earning rental income, you may seek to earn a lump some of cash to invest elsewhere.
In short, only you will know what it is you wish to achieve and what the financial figure is that you seek to earn from property. Spending the time to understand your goals and direction will be of great benefit not just at this early stage but also much further down the road. Now we have cleared the first consideration, we can get stuck into strategy.
How much do you need to invest in property?
To answer the question adequately, we will divide the different types of property investing strategies into three categories: Flip strategies, buy-to-let strategies and zero mortgage strategies.
A flip strategy or property flipping, is an investment strategy favoured by property developers and involves buying properties, increasing their value (through refurbishment, development, title split etc.) followed by selling the property for a profit. Each investment will be relatively short term with the aim to recover your investment funds plus any profit as quickly as possible. To learn more, take a two minute read of our guide: Flipping Houses For Beginners.
The upfront costs of flipping a property will include the purchase price, legal fees, surveys and stamp duty. Next of course will be the price of any refurbishment or development costs, which may include an architect, structural engineer and planning application alongside materials, contractors and trades people. Finally will come the sale costs such as additional legal fees, estate agent fees and potentially capital gains tax.
This can all add up to a sizeable amount over the time between purchase and selling. If the property is not habitable, i.e. does not have a kitchen or bathroom for example, it will not be possible to obtain a mortgage. You will therefore have to consider if your personal funds will cover the costs or if you will need alternative lending such as angel investors or bridging finance. You may like to read our post How To Use A Property Bridging Loan.
Most income generating strategies used by property investors are buy-to-lets. In the simplest terms, you buy a property and rent it to tenants. Buy-to-lets can be residential property, holiday lets or even commercial property. Buy-to-lets will often start in much the same way as a flip – you have the upfront costs of purchasing followed by the cost of any work to increase its value or bring it into a lettable state.
The big difference is in the fact you will maintain ownership of a buy-to-let property to earn rental income from it. Additional costs to the landlord will be from maintenance costs, management costs and mortgage repayments. For a residential property purchased with a buy to let mortgage, a 25% deposit should be expected and this is likely to be higher for commercial mortgages.
Calculating rental yields for properties will only compare the property value against the income generated. This is why at Asset Academy, we teach how to use a return on investment (ROI) calculation, which gives an indication of how long it will take to earn back any money you have invested in the property. ROI is a useful calculation for property investors because the sooner you can extract your money from a property, the sooner you can invest it in the next property.
Zero mortgage strategies
Finally we have income generating property strategies that do not require the investors’ ownership of a property. This may be music to the ears of some, particularly if you have limited funds or difficulty obtaining a mortgage.
Such strategies include Lease Options and Rent to Rent. These two strategies provide the opportunity to take control of someone else’s’ property, and rent it to your own tenants. The obvious advantage being that your initial investment costs will largely be restricted to legal fees. If you want to learn more about these exciting strategies, we have in depth Advanced Training Courses dedicated to them.
Answer the question!
With a vast range of property prices in the UK it is impossible to place a definitive figure on how much do you need to invest in property. For flips or buy-to-let strategies be prepared to have funds for a deposit, purchase costs and renovation costs. However, do not be dismayed if this feels like a tall order right now, the skills that we teach on our Creative Finance course are designed to overcome such challenges.
With zero mortgage strategies it is possible to start investing in property with very little initial capital. You can learn more about Rent to Rent in our useful article: Rent To Rent Deals: 5 Things We Love About Them. If you want to learn even more, why not book on a FREE one hour Discovery webinar to see how property investing can benefit you.