Frequently Asked Questions

Questions of the Week

Each week, we ask our Investment Consultants ‘What are the most asked questions from our clients‘ so we can give you the best advice to make informed decisions on your investment journey.

This week, Michael Johns & Chris Smith, give their expert advice on some of the most important topics when choosing the right investment for you.

  • When it comes to managing your investment, the level of involvement you need can vary depending on your preferences and the type of investment you have. Here are some key points to consider:

    Self-Management: If you prefer a more hands-on approach and have the time and expertise, you can choose to manage your investment yourself. This involves tasks such as finding tenants, handling maintenance and repairs, collecting rent, and dealing with any legal or financial aspects of property ownership.

    Property Management Services: Alternatively, you can opt for property management services provided by companies like Residential Estates. These companies specialize in managing properties on behalf of investors and can handle various aspects of property management, including tenanting, maintenance, rent collection, and legal compliance. They can provide you with industry knowledge, support, reliability, and customer service.

    Benefits of Property Management: Hiring a property management company can offer several benefits. It can save you time and effort by taking care of day-to-day tasks and responsibilities associated with property ownership. They can also provide expertise in tenant screening, marketing, and rental pricing, which can help maximize your rental income. Additionally, property management companies can handle any issues that may arise with tenants, ensuring a smooth and hassle-free experience for you as an investor.

    Considerations: When deciding whether to manage your investment yourself or hire a property management company, consider factors such as your experience, availability, location, number of properties, and personal preferences. If you have limited time or lack expertise in property management, outsourcing this responsibility to professionals can be a wise choice.

    With over 20 years of experience in the Serviced Accommodation Short Term Letting and Management sector, Residential Estates can guide and support you, to ensure that you get the most out of your property investment.

  • You might be wondering if you should set up a limited company when buying an investment property in the UK.

    Well, there's no easy answer to that question. It depends on your personal and financial situation, your goals and your tax implications. There are pros and cons to both options, so you need to weigh them carefully before you make a decision. Here are some things to consider:

    Pros of buying as a limited company: You can claim more expenses as deductions, you pay corporation tax instead of income tax, you can reinvest your profits without paying tax, you can protect your personal assets from creditors, you can sell shares of your company instead of the property.

    Cons of buying as a limited company: You have to pay more fees and comply with more regulations, you have to file annual accounts and tax returns, you may have difficulty getting a mortgage or a good interest rate, you may have to pay capital gains tax and stamp duty when you transfer properties to your company, you may have to pay income tax when you take money out of your company.

    To know which option is right for you, you need to do some calculations and compare the costs and benefits of each scenario. You also need to think about your long-term plans and how flexible you want to be.

    You should consult a finance professional who can advise you on the best course of action for your situation. At Residential Estates we have connections with some of the best companies in various fields of expertise.

Previous Questions & Answers

  • This is an interesting question, because the seller has to give more of their profit to the investor, so we know that when interest rates are low there are more people buying, attracted to the low rates.

    When the rates are high it puts people off BUT what many investors don’t realise is when I am sourcing an opportunity, I relay (the high rates) to the person selling the property/ies, and my job is to explain that to encourage interest from potential purchasers, they (seller) will have to give higher yields or more equity, to make the deal an attractive investment opportunity. So your gains are higher than they would be if the interest rates were low.

    For example (this will not work for the owner occupier market as prices are set) last year we were basing prices on valuations of 8% yield of the purchase price, that was due to the lower interest rates at the time. But now we are looking to achieve 9% but interest rates are higher. To give an exact example is a recent (April 2023) sale of an HMO for £215,000 with a 9% return, if this same property had been priced up 12 months ago with an 8% yield the property price would have been £243,000, the rents on this particular property have not changed massively in that timeframe. Interest rates last year were about 4.5% on HMOs and approx. 6.5% now (May 2023) so as the purchaser, if you got a fixed rate for 3yrs at 6.5% and then calculated what the rate would be if purchased at £243,000 at a lower rate, the difference is you are paying £6k more BUT the purchase price is £28,000 less. In short high interest rates help me to negotiate with the seller to give more margin to the buyers.

  • Many investors are responding to new projects and conversion project opportunities in secondary cities due to lower price points with higher yields, which are sustainable. The high demand/poor supply scenario is putting more pressure on the private rental sector and these conversion properties are generally centrally situated, so these properties are not only offering all the modernity, and build warranties, but also an established infrastructure, offering local shops, restaurants, doctors, schools etc.

    Large corporate companies have been attracted to set up their head-quarters in these secondary cities, due to cheaper land deals, office spaces, easier parking etc, and bring existing employees and new employees to the area.

    Coca-cola, Haribo sweets, Lloyds/Halifax Bank, The Card Factory – to name a few, have all done this. This has resulted in putting extra pressure on the local private rental sector, in an already depleted supply, and this is something that exists throughout the UK.

    Dependant on where the location of the project/property is, these secondary cities are often surrounded by beautiful scenery, monuments, historic walks, bike trails, railway trips etc. and with good connections to motorways, railways and public transport, therefore also attract a high level of demand for short-stay tenant traffic, along with the ‘new world’ of remote working, where employees only have to travel into the office once a week, this all results in high demand in these locations fitting both rental models of short-stay and traditional assured long term tenancy.

  • Every year new property investors and existing landlords ask themselves this question, as do most of my clients. So since annual house growth has been slowing since the end of the summer 2022, is 2023 and beyond a good time to invest in property here in the UK?

    My simple answer is yes. I believe we are now seeing the market change to become a “buyers market.”

    One thing I have noticed since working within the property industry for over 20 years is that the majority of property investors buy when the market is strong, prices are rising rapidly, which in turn is a sellers market! I guess this is down to consumer confidence, fuelled by the wonderful press and social media outlets! Whereas if the news regarding property is “doom & gloom” investors are less likely to feel confident.

    Below are a few reasons why I think it is a great time to enter the market as a new investor or an experienced landlord adding further properties to your portfolio.

    • Significant shortage of rental stock

    • Rents on the rise and will continue to rise.

    • A slower market will offer the opportunity to pick up a bargain.

    • Property Investment is a medium to long term strategy, with proven data over the past 100 years – therefore the best time to buy was always in the past!!!!!

    • A quick question to ask yourself “if I buy a property today at £150k, what will it be worth in 2035 – the answer is it will probably be worth £300k.”

  • This is probably one of the most asked questions we receive from property investors both new and experienced.

    Most potential buyers in the UK and overseas look at major Cities, like London, Birmingham. Manchester and Liverpool, or areas they live in or know well. They are drawn to previous times of growth, or the size of the city and a lot of luck is involved in these major cities, to get the right property, in the right location and make a good ROI, which I know personally from my own purchases. Whilst not saying there are no good properties available in these cities, we do not offer a lot of investment properties in these locations for several reasons, with the main reason being, huge saturation of properties. If you run a rent/buy search on Rightmove on each city, you will see thousands of propertied available to both buy or rent. This saturation means, if you were to buy a property, you may need to offer a reduced rental amount to get it tenanted, or a discount to sell quickly in the future. There is over supply, and this can lead to less flexibility or options to sell, re-mortgage etc, down the line.

    Our philosophy works around demand. As with any investment and not just property investment, demand is the key to growth. We turn away most properties we are offered to market, mainly due to us not being able to guarantee demand. We find properties in areas where we know, there is demand from people who want to buy to live there, work there, rent long term, or there is a very good short term let market whether this be leisure lets or Corporate Lets. We look at small cities, large towns, and other locations, that are maybe next to bigger cities, but the properties are a lot more affordable. Areas which are going through regeneration, are having transport links upgraded and we find that these locations, have property prices also rising faster than the main cities.

    We also look at areas where we know, the yields and rental incomes are likely to be high and there is rental demand for both long and short term lets giving you multi rental options. We find Corporations who need high quality accommodation and pay nightly rates, usually in the most prime area in the town, where there is a lack of good properties or quality hotels. This means that these locations will tend to give a high yield conservatively, compared to a standard BTL property or property in a large city. These in demand locations, with high yields mean most developments we offer, grow much faster in value than the National average and can be sold quickly in the future which give you the flexibility on your property journey.

If you’re new to property investment, here is a helpful selection of questions, commonly asked to our investment consultants.
Click on the questions below to see our answers.

  • Property Investment is one of the most common investment types and involves purchasing a real estate property and either renting it out or reselling with the intention of making an increased return on the initial investment (deposit) or purchase price. There are many different types of property investment, some of which include Residential Buy To Let, Student Lets or PBSA, Furnished Holiday Lets, Flipping for Profit, Rent to Rent and Commercial Property. Investment properties can be both a short or long term strategy, and can be purchased by individual investors, groups of investors or companies.

  • An investment property is property purchased to generate an income / return via different ways, such as renting to either short or long term tenants, adding value by decorating or building extensions, or capital appreciation.

  • A buy to let property is a property that is purchased with the intention of renting out to tenants or holiday makers to generate an income for the landlord/owner. There are a variety of types including student buy to let, holiday let and Assured Shorthold Tenancy lets. Buy-to-let property also includes commercial properties. The term can also mean a basic investment strategy, generally focussed on family style property purchased and then rented to singles, couples or families on a long term rental basis.

  • Is UK property still a good investment? The short answer is yes, but there are many factors and reasons why 'bricks and mortar' and the UK property market is still the number one choice of investment for many an investor. Some of these factors include the projected house price predictions for the next 10 years, regeneration areas, low interest rates, increasing population and undersupply driving demand, foreign investment into the UK and rising rents. Other personal reasons to invest in property are the fact you have the choice what to invest in, and how to invest, be it buying outright or utilising leverage by borrowing from a bank (mortgage), there are multiple revenue streams including rent and capital appreciation, and owning property is a good way to hedge against inflation because as cost of living increases so does your rent and generally your property value.

  • Net yield is the annual profit (income minus costs) generated by an asset, divided by its price. It is very useful for investors to know as it gives a true picture of their actual returns as appose to a gross yield which doesn’t factor in costs and can be slightly misleading when viewing a properties financials.

  • Capital appreciation, sometimes referred to as capital growth, when talking about property, is the amount, or value, that the property goes up over time. If your property increases in value this is called the ‘capital appreciation’. It is obvious to mention that the value of a property can also go down, or depreciate.

  • This is not a question that can be answered in a single sentence. Everyone investing in property is looking for something different in terms of strategy, and their requirements or needs, ie what they want to achieve from investing in property. In many cases however rental yield and capital appreciation, (capital growth) are both important, so considering the potential for both is generally advised, especially when starting out. For more information on what strategy would be right for you please speak to one of our investment consultants on (+44) 01244 343 355 or email sales@residential-estates.co.uk

  • This is when an agent and/or company sources investment property deals and negotiates with the developer or owner on behalf of an investor. As an investor, working directly with a property sourcing company or agent can be a great way to find exclusive deals, off market properties, and to help grow your property portfolio without having to spend the time and effort yourself to ‘source’ those opportunities that are right for you and your strategy.

  • A resale property is normally completed, previously owned, and is now up for sale again. Investors will typically look to sell their property when they need to release their capital from the investment, sometimes resale property can be purchased with an existing tenant in place and under market value. You can find out more on resale properties from our Ask Johnsy video blog here

  • An HMO, or House in Multiple Occupation, is a type of accommodation that is rented by a minimum of 3 tenants or more, who are not from the same household, but sharing the facilities, for example the kitchen, toilet, bathroom and sometimes the lounge. Generally, tenants in an HMO will have their own bedroom/lounge which will be private and secure, and then the rest of the house will be shared with the other occupants.

  • There are differences to leasehold and freehold property and you should know these before considering buying any investment property. Firstly freehold means that by owning the freehold then the owner owns both the property and the land that the property sits on. As a side note, due to the civil aviation act of 1982, if you own the freehold of a property you will also have rights of ownership to the ‘airspace’ up to approximately 500 feet above the property. Owning the freehold means it will be your name on the land registry as owning the ‘title absolute’. The majority of houses in the UK will be sold and classed as freehold, though there are some, particular with new build developments, leasehold houses.

    Leasehold means that as a leasehold property owner you do not own the land that your property stands on, and you will most certainly have a lease from the freeholder, whereby you will lease to use the property for a set period. Normally leases are for periods of between 125 – 999 years, however check the lease period before purchasing a leasehold property, especially if it is a resale property, as the leaseholder may not have extended it. It is normal to pay ground rent and a service charge to the freeholder which is to cover works needed to be carried out to the communal areas and externals of the building. The majority of flats and apartments in England are leasehold, whereas the rules in property law are different in both Scotland and Ireland.

  • If you own a leasehold property, you're usually required to pay a service charge to cover the maintenance costs of the building either you live in or rent out. The charge normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, central heating, lifts, porters, and lighting and cleaning shared areas. Service Charges are set by the freeholder and can go up or down each year depending on what the annual costs are.

  • Ground rent is a fee leaseholders must pay to the freeholder of a building/plot of land as a condition of their lease for the land their home is on. Rates vary significantly but most are now set at 0.01% of the property purchase price and increase with inflation every 5 to 10 years. Typically, this is an annual payment but it can also be done monthly or quarterly.

  • PBSA or Purpose Built Student Accommodation is a particular style of housing scheme built specifically for students, generally comprising of self contained studio flats with their own kitchens, en-suite bathrooms, bedrooms and living areas, some will have ‘cluster’ flats with shared living spaces. Many purpose built student accommodation developments will also have communal facilities such as a gym, cinema room, laundry rooms, car parking and on-site management. The developments are often built by independent property developers as they rapidly became one of the UK’s most popular investment opportunity to private investors. Many students are choosing PBSA as a preferred choice over campus accommodation due to the privacy and security.

  • Yes. Providing there are no restrictions set by either the UK or overseas countries authorities. Personal checks such as AML (Anti Money Laundering) will also be carried out by solicitors to ensure you are eligible but it is incredibly rare for someone to not be able to invest in the UK.

  • Buying an ‘off-plan’ property means to purchase either before the building work has started or during the build stage, in short buying before it is built. Many investors look to buy ‘off plan’ properties with the aim of making considerable capital gains through either buying below market value, or by the increase in capital appreciation in the value of the property during the course of the build. Also the earlier you buy then you will have a better selection of unit if considering an apartment or house in a popular development. It is common nowadays for popular investment opportunities to ‘sell out’ before the completion of the build.

  • A guaranteed return or guaranteed rental return in relation to investment property means that a specified company, normally the developer or freeholder will pay a fixed agreed amount of rent to the investor for a fixed period of time. This will secure your cash flow for the duration of the rental guarantee period. This will also mean you will receive your agreed rent even if your property is empty.

  • Commercial property, although technically this can refer to any property that has been purchased with the intention of generating a profit, including residential property, in the UK, the term commercial property relates to any property that is used for business or healthcare activities. The different types of commercial property include warehouses, factories, hotels, restaurants, cafes, shops, medical centres, hospitals and nursing homes.

  • The term FHL in property terms generally stands for Furnished Holiday Lets. An FHL is a specific rental classification where a furnished property is available to let, generally on a nightly basis, and can allow owners certain tax advantages/benefits. To qualify for FHL status there are certain criteria your property must meet, including the following: 1) The property must be available to guests for a minimum of 210 days per year. 2) The property must be rented out as holiday accommodation for at least 105 days of the 210 days it was available. 3) If the property is let out for more than 31 days to the same person there should not be more than 155 days of this type of long term occupation.

  • STL in the property sector generally stands for Short Term Let. An STL or Short Term Let is any letting agreement that lasts less than six months, and can be as short as 1 night. Short Term Lets have become very popular allowing landlords to rent their properties to holiday makers, travellers and corporate clients wanting to stay for shorter periods than an AST or long term let will allow.

  • In general property purchase terms, under a purchase option contract, the interested buyer pays the seller an amount of money to be given the exclusive rights to purchase that property within a fixed time period, and for a pre-agreed, fixed amount of money. The buyer must purchase the property by the end of the holding period or they waive the right to buy for the agreed amount. The time period is agreed between both parties, but normally it will be between 6 months and 1 year. The amount payable for the purchase option can also vary, and can be as little as £1.

  • BMV, or Below Market Value, is a term used to describe a property that is being marketed at a price below the current market value for similar sized properties in the same location and condition. For example if all 2 bedroom properties on a particular street were being purchased at £100,000 and a similar sized property, in the same condition, and street, was marketed for £80,000, then this would be considered to be BMV. In reality it is very difficult to find BMV properties, because it stands to reason that most sellers want the most out of their sale.

  • An amount of money paid to a seller, or their sales agent, to reserve a property (take it off the market). This is normally deducted from the total amount payable for the property. If it is not part of the total amount payable, and is an additional fee, it is normally referred to as an admin fee or finders fee. Sometimes an admin / finders fee can form part of the reservation fee and is retained by the agent to cover their up-front costs.

  • An additional fee charged by an agent. This can range from a standard admin fee of £500 to £2,000 or can be much higher where deals have been specially sourced. This usually occurs where there is not enough money in the sale in order to pay the agent to cover their costs (or give them their usual required margin).

  • A reservation fee is normally payable before contracts are signed for a property, and the main deposit is paid, the seller will incur costs such as legal fees to have the contracts issued to the buyers solicitor. If there is no commitment from the buyer, the seller risks being left to cover these costs, therefore, a non-refundable reservation fee is collected as a commitment from the buyer to buy the property.

    Additionally, in a fast selling property development, taking a property off the market may force subsequent buyers to settle for their 2nd or 3rd choice. If there is no commitment from the buyers side, future buyers will never have a true understanding of what is available and what is actually sold.

  • A buy-to-let investment can still be lucrative, with multiple ways to increase income, despite the recent property tax changes. Some ways to maximise your income include:

    Setting up a Limited Company - This may be a good way to reduce the tax you pay, potentially increasing returns

    Check and Review your Mortgage - Check your current interest rates, and speak to a mortgage advisor to see whether there are better products on the market

    Rent Reviews - Ensure you or your managing agent are increasing rents in line with inflation, though this is not a black and white strategy because you also don’t want to lose good tenants for the sake of a few pounds

    Claim All Available Tax Deductibles - Speaking to a knowledgeable accountant could save you £1000’s and remember to keep all receipts paid for repairs to your property

    Consider a different strategy - Many landlords have found higher returns by changing the strategy with their property such as turning to short term lets

If you’d like to learn more or discuss your potential investment opportunities with one of our consultants, please fill out the form below and one of our team will be in touch with you within 24 hours.