In this post, I’m going to discuss property investing for beginners in the UK. Now, I want to be really honest. When I first started to invest in the UK, I didn't know what I was doing. I just found a house in an area which I wanted to live. I'd just started work at Cadbury's in Birmingham. I was a graduate trainee so I had a good job and that meant I was able to get a first time buyer mortgage 95% loan to value. So in other words, the loan was 95% of the purchase price. I still had to put a 5% deposit in and I had to pay my legal costs. That was a bit of a problem because I didn't have any money at all. I'd been a student and I was in debt. But I was able to borrow some money from a relative. It wasn't a gift, it was a loan. I paid them back plus interest so they were really happy with that. That got me on the ladder.
So if you don't have your own property yet, often the bank of mom and dad could help. Or you might have some family members who might have some cash that you could borrow to get onto the ladder and you can pay it back to them in the future. The sooner you can get on the property ladder, the better. Now you might already have your first home and you're thinking about getting into property investing in the UK. So let me share with you the basics you need to understand. It's a big subject but I'll give you as much information as I can in this blog post.
Getting a Buy-To-Let Mortgage and Buying in a Company Structure
When you buy an investment property, it's different to the property you might buy to live in yourself. When you live in your own home, you get a mortgage and that's a residential mortgage. When you get an investment property, you get a special mortgage called a buy-to-let mortgage. Typically in the UK, at the moment, you can borrow up to 75% loan to value.
So if a property is worth £200,000, you might get a £150,000 mortgage and you put a £50,000 deposit in. We'll come back to the deposit you need for property investment in the UK later on, but let's discuss the mortgage for the moment. A lot of people who are new to property investing believe that they're not going to be able to get mortgages. Maybe it's because they've already got their own house they think they can't get a second mortgage, or maybe they haven't even got their own home yet but think “I don't earn enough to get a mortgage.” You need to understand when you look at a rental property, whilst the lender will look at you and your income, that's not the most important thing. It's all about the property that you're buying and the rental income generated from that property.
As long as that's enough to pay the mortgage and pay the other costs like the insurance, maintenance and management, then that lender might well give you the money. Also a lot of people believe that it's hard to get a mortgage if you don't have experience. There are lenders right now in the UK property market that will give you a mortgage on a property in a brand new company with no track record and no experience.
“When you live in your own home, you get a mortgage and that’s a residential mortgage. When you get an investment property, you get a special mortgage called a buy-to-let mortgage.”
Moving forward as a property investor, buying in a company is probably the best structure. However, it is always a good idea to get independent financial advice based on your personal circumstance to understand what might be the best way for you to buy. But typically buying in a company is right for most people. You can set up a new company and you could get a mortgage on that. For the deposit, you'd need to put some money into that. This is a big stumbling block for many people who want to learn about property investing in the UK. They don't realise that although you have to put a deposit in, typically a 25% deposit, it doesn't have to be your money.
Maybe you can release equity from another property. Maybe you've got your own home and you've been paying that mortgage off for years and years, because that's what we're told to do, and there might be lots of equity there. Maybe you can release that equity and use that as a deposit to buy your first property, which is a perfectly good strategy to use. Or maybe you've got some money, maybe you’ve got some inheritance money, maybe you’ve been made redundant, maybe you sold a business or sold some shares. All that cash can be used to buy the property.
Finding Deals and Investing with Other Peoples’ Money
The reality is this if you are starting to buy property in the UK, most people, in fact anywhere in the world, would run out of their own money at some point. You need to understand that you shouldn’t limit yourself to what you can do based on your personal resources. Maybe you don't have any money at all and you think “I can't possibly buy”. Well here's the reality, there are lots of other people who've got money in the bank doing absolutely nothing right now. Now getting good at finding deals is an important skill you need to learn. You need to learn how to find great quality deals. There are people who have money but don't have the time, the knowledge or the inclination to find their own deals.
Maybe they can put the money into the deal and you bring the deal. Why would they do that? Well they get a share of the cash flow and they get share of the profits. It's called a joint venture. An alternative to that is where you do a private loan. You might have some family or friends that have some money that’s doing nothing for them in the bank. You could borrow that money to get on the property ladder to get your first investment property. That's what you need to get going. As the value goes up over time, you can refinance it and then you can pay them their money back. So that's buying the property.
Learn How to Be a Successful Landlord
Next you need to understand about managing the property. There's a huge amount of things you need to understand about managing property. There are lots of responsibilities for example; you need to make sure you take the safety of your tenants very seriously. There is a national landlord’s association called the NRLA, National Residential Landlord Association.
They used to be two associations but they've merged and that's the new one. You could join that for I think for less than £100. They’ll give you all the information you need. They'll give you the contracts you need, the rental agreements, which are normally AST contracts. They have a legal helpline, if you have problems with tenants, you can call them up and ask them. I’m not getting any commission for this, I've not got any links for it, but I suggest that some of you might want to look at it as it's a great source of information.
Another great way to learn what you need to do is to read books about property. I have a ‘Property Magic’ podcast, which is completely free. You can get on iTunes, on Google play and Spotify, just search for ‘Property Magic’ podcast. It has well over 12 hours of free content, every Tuesday we bring out a new edition of these 15 to 20 minutes episodes of great quality content. It’s just me talking about strategies and some are more advanced, some are for beginners, but I suggest you listen to that.
There's a whole load of free resources. Sometimes that's a problem. If you are a beginner starting to invest in property in the UK, I think sometimes there's almost too much information out and you get overwhelmed, you don't know what to do. The thing I would say is you want to be careful though, anyone could write a blog post like this one. I've been investing 25 years and I've been teaching people since 2003 how to become successful as investors and how to do it far quicker than I did it.
But someone could just read a book, go online and do a video about investing. There’s nothing wrong with that but do they really know what they're talking about? I would make sure you're educating yourself with people who've been doing this a long time. Who've seen when the market growing and seen when the market's been coming down because it doesn't always go up. Who've got the battle scars and who've made the mistakes that most people make so you don't have to make those mistakes yourself and instead you can learn from them. So go and check out my free resources.
Attend property investors network Meetings
The other resource you should check out is the property investors network meetings. In 2003, having been investing for eight years and by that time I'd left my full time job at Cadbury's, I'd done pretty well. I realised I'd also made lots of mistakes. I thought, it would be good idea to connect with some other people and to learn from some other people who've also done what I've done, so I don't have to reinvent the wheel and make mistakes myself. So I went online to see if there was some sort of networking group I could join, but unfortunately there was nothing back in 2003. So I then set up the property investors network as the very first networking meeting in the entire UK for property investors.
It became very popular, we've now got 50 meetings around the country. I encourage you to go to pinmeeting.co.uk. It is £20 to go to a meeting, but because you're reading this blog, I want to give you a gift. Use the voucher code ‘zutshi’ on the payment page it will bypass the £20 payment. Come as my guest to your very first meeting just to check it out for yourself. What you'll get is a whole load of people who are like you, interested in investing in property. Some experienced, some new people as well. You're going to learn from other people who are investing in your area. If other people are finding great deals in your area, it means it's absolutely possible. You just have to learn what they've done.
We also have great speakers who have been investing for a while, they've got great results and they talk about what they've done. So you don't have to learn everything the hard way by trial and error, making mistakes. You can learn quickly by finding what other successful people have done and copy what they're doing. You can also build your personal network of contacts. You can ask for recommendations like great mortgage brokers or solicitors or letting agents, whatever you need. In fact we have an independent mortgage broker at each meeting, who's there to help you to help you understand how you can actually get finance for your property.
So go and check out the property investors network meetings. I do hope that this short introductory post has given you a little bit of a flavour and understanding the difference between residential and property investments. I’ve talked a little bit about buying the property, I’ve talked a little bit about managing the property. I've made a few recommendations.
I highly recommend you take action and go and check those things out for yourself. So until the next post, I encourage you to invest with knowledge, invest with skill.
Book your virtual pin Meeting
Click HERE to book and check out your local virtual pin Meeting. If you've never been before, you can come as a guest, completely free of charge as it is normally £20.
Use the word ‘zutshi’ when booking your place, that is how you can come to your first meeting completely free of charge as my guest.
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