Property is one of the most popular ways to invest in the UK, but the jargon and the amounts involved put many people off. This guide covers the basics.
How property makes money
There are two sources of return. Income is rent paid by tenants, less running costs. Capital growth is any increase in the property's value, realised when it is sold. Both can also fall.
The main ways in
- Buy-to-let: buy a home and rent it out. Needs a deposit, usually at least 25%, and you take on landlord duties.
- Commercial property: buy a shop, office or industrial unit. Higher prices, business tenants, different lease rules.
- Fractional ownership: buy shares in a company that owns one building. Smaller amounts, no landlord duties, but your money is tied up.
- REITs and funds: buy shares or units in a portfolio. Easy to buy and sell, but you do not choose the buildings.
Compare them in how to invest in property with a small amount.
Five terms to know
- Yield: annual rent as a percentage of the property's value. See rental yield explained.
- Void: a period when the property is empty and earning nothing.
- LTV: loan to value, the size of a mortgage as a percentage of the property's value.
- Freehold and leasehold: outright ownership versus ownership for a fixed number of years.
- Covenant: how financially reliable a tenant is. See tenant covenant strength.
Mistakes to avoid
- Looking only at the headline yield and ignoring costs.
- Putting all your money into one property.
- Investing money you might need back soon.
- Skipping due diligence on the building, the tenant and the people running it.
Next, read fractional property investment: the complete guide.
This guide is general information, not financial, tax or legal advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser.