UK Property – 7 Critical Questions
I thought it might be an idea to put together some common FAQs that we get asked about a lot when it comes to UK property…. these are also in the full 10 steps to 10k ebook. So, consider it a bonus article!
Is yield or capital appreciation more important??
This depends on your goals and your timeframe. The simple answer is that both are important and in our opinion, a good buy-to-let property should target both. It should hit the ‘sweet spot’ between yield and capital appreciation. Usually, properties that allow you to do this are priced at GBP200-300k and will have a yield of 5-7%.??
Generally speaking, higher value properties, think the southeast and London, will have greater capital appreciation potential and lower yield. Whereas cheaper properties think north east, will have a lower capital appreciation and a higher yield.??
As an example, a property at GBP1m appreciates by 5% and a property at GBP100k appreciates by 5%.... one earns you GBP50k and the other GBP5k.?
What is best for you? Look at your goals (phase 1). Are you looking to retire and live off the income from property in the next 5 years (as an example)? If so, then yield is probably more important. Are you looking to build a pot so that you can sell the property and buy a forever home? If so then perhaps capital appreciation.??
Should I just own property, or other assets as well??
Other assets as well. As a rule, for long-term wealth creation, you should seek to create ‘multiple streams of income’. There is a great book we mentioned in the opening chapters, called ‘multiple streams of income’ and in this book they discuss the importance of creating 7 streams of income. If one dries up for a period, you will have others. Streams of income can be;?
This takes time to build up, so focus on doing one well first before diversifying. Start with property then move into stocks and shares or vice versa. Diversification is important.??
Does owning a UK property make me a tax resident???
This depends on how much time you spend in the UK! But, let us assume you are an expat living outside of the UK. in this instance it doesn’t make you a tax resident. You will have to pay income tax or corporation tax on the income from the property (depending on your set up) as the income is ‘derived’ from within the UK.??
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We often hear people complaining about tax… look at it from the other side, paying tax is a good thing, it means you are earning money!??
Should I buy near my family so they can manage the property???
I understand that this can give people peace of mind, but, and it’s a big but, unless your family live in a good quality investment location, and unless they are a professional property management company it is probably not a good idea.??
It may seem like a nice idea for Mum, Dad, or your siblings to be able to check on the property or carry out maintenance, but it’s far cleaner to have properties managed by a professional (for the sake of a small management fee which will be covered by the income anyway), and it make more sense to buy in a good quality location. Based on the fundamentals of what makes a good investment location (PIE), as opposed to buying near family and friends.??
Should I buy where I know???
Similar to the above really. If where you know is a good quality investment location, with good quality PIE, that will give you good quality tenants and a yield of 5-7% then yes, go for it if it gives you peace of mind. If you are not one of these lucky people, then it is better to carry out thorough research and buy in a better location.??
What are rental yields and how do I calculate them???
In our opinion, rental yields are often given too much attention! Yes it’s important,? but it is not the be-all and end-all. It’s far better to look at the cash flow positivity of a property, and does it move you closer to your goals???
Put simply, the yield is the income you earn from a property each year, expressed as a percentage of the overall property value. For example, an annual income of GBP6k per annum on a GBP100k property gives a yield of 6%. This is the gross yield, if you then deduct the properties running costs you get the net yield.?
Will interest rates stay high???
It depends on when you are reading this. Since January 2024 mortgage rates have been falling, whilst the Bank of England rate has remained the same at 5.25%. many industry experts are predicting rates will continue to fall until we reach a ‘new normal’ of circa 3-4%.??
For those younger people reading this, or those new to property, it’s important to remember that rates of 0.5% and lower are very unusual and only became normal after the GFC (global financial crisis).?