What is an investment property?

Unlike getting a traditional mortgage to buy a home to live in, the purpose of an investment property is usually for a financial return.

When you invest in the real estate sector, it will fall into one of two categories; off-plan and completed.

As the name implies, completed properties are those already built. One of the advantages of this option is time. As they are already built, there is no waiting time.

Off-plan is where you buy a property from real estate developers before it is even built. Purchasing a property under construction may seem strange, but there are some benefits, with the biggest being attractive property prices.

Developers would rather sell units as quickly as possible and move on to the next project. Because of this, they tend to offer units at much lower prices. In some cases, the price is below the market value. This allows investors to buy cheaper and ultimately increase their overall returns when they come to sell.

If you would like to know more, our article onoff-plan vs completed propertiesgoes into more detail.

How do you earn a return through property investment?

A real estate investor will typically generate a return through capital growth or rental income. In some cases, both apply.

Capital growth

Sometimes known as capital appreciation, capital growth simply refers to an asset increasing in value over time, in this case, the property.

Capital growth is calculated by comparing the current value to the purchase value. There is a little more to it than that, but that is how capital growth works in general.

Off-plan properties usually offer better long-term growth due to the lower initial investment.

Rental income

The other way to generate a return through a real estate investment is via the rental market.

Buy-to-let property investments can provide an additional income stream through rental income. With these types of investments, a strong rental yield is crucial.

Rental yield is essentially how much you can expect to make from rent payments when measured against the price you paid for the property. There are other factors involved, and there is a little more to it.

Looking at rental yields in detail can show some of the UK’s best places to invest in property.

There are some things to be aware of if you go down this route.

For example, you will need to think about the costs of maintaining the property. Also, you will need to find potential renters for the property, something which could prove challenging if you are an overseas investor.

Still, buy-to-let homes are one of the most popular property investment methods, as they provide a regular income.

What is a good ROI on a rental property?

Return on investment (ROI) is an essential metric for rental property owners to know. Be aware that your ROI is different to your rental yield.

Here’s how you can calculate your ROI.

First, you need to work out your total gain. In other words, your income from monthly rents. Then, subtract your outgoings, including operating expenses and paying property managers. You will also want to think about general upkeep costs and property taxes. The third step is to divide this figure by the amount you invested into the property. Finally, multiply that number by 100 to get your ROI as a percentage figure.

Your ROI will depend on several factors such as:

• The price you paid for the rental property
• Overall rental income and periods where you do not have tenants
• The costs of operating expenses
• Expenses paid over annual periods such as insurance and tax
• Your monthly expenses, such as mortgage payments

How much do you need to invest in property?

The amount you need to invest will depend on the type of property.

Residential property is one of the more common options for investors in the real estate market. Buy-to-let property investments in the UK usually start at a 75% loan-to-value amount. So this means you would need a 25% deposit of the total price. Social housing property investments may also be an option for you, too.

Be aware that property investment for expats can cost a little more and you may want to consider the natural rises and decreases in the property market and how they impact property investing.

When buying a property overseas, you will usually need a mortgage from a specialist lender. Highstreet banks are often not set up to deal with the unique circumstances of expats.

Getting a mortgage in the UK when living abroad is still possible. However, you should be aware that more paperwork may be involved, and lenders often require a larger deposit. Carefully consider the location of your property investment too – the UK’s North/South divide can have an impact on expected rental yield returns.

Property investment in the UAE

Property investment in the UAE is very different from the UK.

In Abu Dhabi, expats are permitted to own properties in the form of floors and apartments only. When buying property in Abu Dhabi, there are four main systems:

Ownership

Ownership deeds are granted to expats for a 99 year period. The deeds allow them to fully dispose of apartments and villas, but the land is not included.

Musataha

Expats can own residential units for a period of 50 years and can be renewed. These contracts allow the owner to use the property and carry out work to make alterations.

Usufruct

Expats are granted 99-year lease agreements. This system allows the owner to use the property, but they cannot make changes.

Long-term lease

The lease is given for an initial period of no less than 25 years.

Expats are allowed to own real estate in the following nine areas across Abu Dhabi:

• Yas Island
• Saadiyat
• Reem
• Mariya
• Lulu
• Al Raha Beach
• Sayh Al Sedairah
• Al Reef
• Masdar City

For more information, visit the UAE government website.

The rules around Dubai investment properties are a bit different. Ownership for anyone who doesn’t live in the UAE and expat residents is permitted only in freehold areas.

Thegovernment of Dubai’s websitehas more information on property ownership.

How to invest in property

Whether it’s a real estate investment in the UK, UAE or elsewhere, the process is often more complex for those buying overseas.

Taking advantage of end-to-end services likethose offered by Holborn Assetscan help make investing in property more straightforward. Our team specialise in property investment in the UK and globally. So, we are well placed to help those looking to invest in property abroad.

We work with some of the biggest and most trusted names in the property market. Our strong relationship with developers means that we can offer exclusive deals on a range of properties in prime locations. We even take care of the paperwork for you.

Contact us using the form below to find out how we can help you build your investment property portfolio.

We’ll be in touch to get you started and guide you through the process from start to finish.