The UK has long been a popular property investment destination for developers at home and abroad. However, over the past few years it has been attracting particularly large quantities of foreign investment, particularly from investors in Asia who are increasingly taking an interest in UK commercial property.
Much of this investment activity is focused in London, a busy and economically robust city. Outside the capital, the buy-to-let market is particularly popular among investors, particularly in urban areas which mostly experience high demand. Among foreign investors, buy-to-let in student towns seems to be particularly favored at present. This is particularly evident in towns with a strong postgraduate population, as postgraduate numbers are currently being swelled by increasing volumes of international students. The reasons for favoring this type of investment are likely down to the student market’s reputation for security and high returns.
Investors looking to freshly break into the UK’s property market face a number of key decisions. Firstly, they must decide on a type of property, which largely boils down to the question of residential or commercial. However, the decision must also be made whether to invest directly or through a property fund.
Fund investment works by allowing investors to buy into a fund with a withdrawal date usually 3-7 years in the future. Using collective resources from all investors, the fund buys, renovates and rents properties and then finally sells them when the fund closes. Profits are then distributed among investors that buy in.
Investing through a fund is a good way to get involved in the property market without getting your hands dirty. International investors can now benefit from a number of funds that have been set up with them in mind. However, investing through a fund is not the best option for those who just want a way to get the most out of their savings, as quite a lot of money is needed to buy in. The power of fund investment lies in the fact it draws large amounts of capital from different sources together, resulting in more power to secure the most profitable properties.
Direct investment, on the other hand, involves simply buying a property directly and then letting it out to tenants. When carried out with a buy-to-let mortgage, it requires significantly less outlay than investing through a fund. However, investing directly is also a much more hands-on approach than investing through a fund, particularly when it comes to the initial choice of property. For many direct investors, choosing the right property will be the biggest challenge. Factors such as price and location are key to choosing an effective investment.
When investing directly, the monthly cost of the mortgage and the property’s ongoing maintenance costs are offset by the rent. The rent should covers these costs and also provide returns for the investor. All the while, the property will usually also appreciate in value, providing a further albeit less liquid source of returns.