If you’re looking to start generating another source of income by investing in property in the UK, or you’re looking to expand your portfolio, there are so many investment opportunities out there. Deciding on the best type of property investment will depend on many factors, such as cost, location, level of property management and highest yield.
Private Buy-to-Let
A buy-to-let is a property purchased to rent out to tenants to generate an income.
The purpose of a traditional buy-to-let investment is to make a profit on the rental income. The property is purchased, and it is then rented out to tenants by the landlord, who then charges rental payments each month. To make a profit, the rental payments need to be higher than the cost of the maintenance of the property, the lettings fees and the buy-to-let mortgage repayments (if there are any).
When purchasing a property-to-let, there are a few initial fees, such as a deposit, mortgage fees and stamp duty (if applicable). If this property is already adding to an existing portfolio, the Stamp Duty will also be at a higher rate.
On top of these fees, the property may need some renovation or improvements before renting to tenants and income tax on the rental income.
Pros and Cons of Buy-to-Let
| Pros | Cons |
| Regular and rising rental income | Higher mortgage costs with a buy-to-let mortgage and rising taxes |
| Capital Growth | Slowing property price growth |
| Lots of tenant demand for rental properties | A hands-on investment, you are responsible for the property and the tenant’s needs |
| You are your boss | Maintenance costs |
| Possible renovation costs | |
| Risk of the property being untenanted for a time |
Air BnB Lets
A property purchased to let via Airbnb is a short-term letting option that enables people to rent an entire property or a private room in a home from a host. The platform has changed the hospitality market, with travellers finding accommodation for business or leisure now choosing these over hotels or bed and breakfasts.
With many choosing Air BnB lets over traditional hotels, the hosts/landlords are safe in the knowledge that a large company is handling the payments on their behalf, and they are also there to offer support.
The host takes most of the payment from their guests, with a flat fee of 3% of the reservation total taken by Airbnb from the host when they receive payment and a fee is also collected from guests when they book. The tax liabilities of the property are dependent on the space that is made available by the host.
Pros and Cons of Air BnB Lets
| Pros | Cons |
| Higher income potential in popular tourist areas like London compared to long-term rentals | Management effort and cost, including frequent cleaning and property maintenance |
| High demand in the short-term rental market can maximise occupancy | Higher wear and tear leads to increased maintenance expenses |
| Pricing Flexibility | Local regulations and taxes may restrict or complicate short-term rentals, impacting profitability |
| Need for thorough research on local laws and market conditions before investing. |
Student Accommodation
Student accommodation is classed as a commercial investment, typically involving properties in cities designed to house university students. These tend to be cash-only purchases, as getting a mortgage on a purpose-built student property development such as a pod or cluster of flats is challenging. In this case, houses of multiple occupancy are often a more popular choice.
Pros and Cons of Student Accommodation Lets
| Pros | Cons |
| Potential higher and longer assured returns of 8-10% for up to 5 years or more | Management costs can be expensive |
| Fully managed by a student management company, including letting, management and maintenance | There is no finance available for student accommodation projects, so investors need to have the capital to invest |
| High demand in university cities due to the shortage of residential accommodation | Reduced capital appreciation based on market and type of project |
| Contractually agreed with a rental income and return on investment | Resale market is smaller, as you will only be able to sell to a cash investor |
| Facilities are of a high standard and in prime locations, often seen as the best option due to bills included, social areas, security and leisure facilities | If the property developer goes bust, the contract will be void and will not receive the funds |
Social Housing Investment
Social housing investment is the process of investing in properties that are specifically for social housing purposes. They are usually rented to housing associations, providers or councils, who then issue these homes to tenants who are on the social housing waitlist.
Pros and Cons of Social Housing Investment
| Pros | Cons |
| Secure return on investment as funded by the UK government, so resilient to any changes in the economy | The UK government policy for the social housing rental industry is reviewed and updated regularly, so you have to keep up to date with any changes |
| High need and demand with a reliable stream of long-term leases | Considerable initial legal costs and tax implications, including stamp duty, capital gains tax, income tax and legal fees |
| Low tenant turnover compared to other property investments | Choosing a location that has a high yield and is attractive for both the tenant and the investor, e.g. near schools, employment opportunities and amenities |
| An ethical investment that provides housing to vulnerable people and families that positively impacts the local community | |
| Expanding investment strategy and diversifying portfolio / an excellent way to start a property portfolio | |
| Social housing developments are required to meet specific standards, so are already energy-efficient and sustainable, without refurbishment |
Investing in UK Property with Yield Investing
The world of UK property investment offers many opportunities for both new and experienced investors. Selecting the right property investment requires understanding your goals, so research and consider factors such as market trends, rental yields, and property value potential. The market’s stability, potential for rental income, and government support make investing in property in the UK a compelling option. While there are challenges, such as initial investment and market volatility, a well-informed and strategic approach can mitigate risks and lead to profitable outcomes.
Yield Investing is here to guide you through your property investment journey, offering expert advice and access to promising investment opportunities. The potential for long-term growth and financial security in the UK property market is within your reach. If you are ready to start investing in UK property, contact Yield Investing today for personalised advice about investment opportunities. We’re here to help you make informed decisions that align with your financial goals.
