Is real estate a good investment?

Homeownership is one of the best investments, as you're saving money and investing in your future. Over time, you're developing wealth and equity, creating a virtual savings account to pay down your mortgage. It is a sensible long term investment as the valuation of real estate increases gradually. 

Securing funds for an owner-occupied property is typically straightforward if you have a decent credit report and a stable income to invest in real estate. You may need some savings as a down payment and can usually ensure the rest in a fixed-rate or adjustable-rate loan.

You can either purchase an apartment, a detached residential building, an office, a warehouse or shops. In addition, you can invest in real estate by buying a house, or you can invest in REITs.

In the current markets, investors are trying to assess the impact of the Russia- Ukraine war on housing markets and the stock markets. They are monitoring the markets waiting for the trends to stabilise.

What Is A Real Estate Investment?

Real estate investment can get you the desired earnings. It allows you to buy a tangible asset that you can lease to earn monthly income and gain through house value appreciation when you sell it. Rents are growing over time in most leading cities of the U.K. Generally, in top property markets, real estate prices increase within a period, and one can also get a chance to earn through rents. 

Equity And Resources

You built long-term equity as a part of your gross profit when purchasing a house mortgage. However, as you earn money through investment in one property, you can purchase more from the earned income and increase your cash flow and total asset value. 

Diversify the Portfolio

You can diversify in multiple markets and asset types by investing in storage, offices, warehouses, residential properties like apartments, detached houses or different markets, and overseas holiday let-ins.

Leverage

One can use it as leverage to maximise the future return on investment by employing other financial resources. 

Hedge on Inflation

The investors get a chance to earn from higher rentals and the increasing price of homes, which offers a hedge against inflation.

Types of Real Estate Investing

There are different types of investments available in real estate; however, the majority come in several individual categories, as given below –

Platforms For Crowdfunding

One can arrange for such investments through crowdfunding platforms, where you get direct links to access the real estate assets and better returns, but it's still a substantial risk. Though some online platforms offer crowdfunding or joint ownership deals at remote holiday sites and provide suitable growth prospects to qualified investors, one should know the risk factors associated with such options.

Buying Land In Undeveloped Areas

Most builders try to get under-developed land with planning permission to build, and they develop the area and sell it to the buyers. Individual buyers are not required to have U.K. citizenship to buy land in the country but getting permission to build on it is another issue. Overseas buyers may have the right to buy land, but land with planning permission to build can be hard to discover. 

Acquiring land to develop takes a lot of analysis on the market, mainly if the property is to be developed by the individual buyer. This investment is ideal for those with substantial resources who have an extensive understanding of every aspect of land development, zoning laws, flood plains, and nearby residential and industrial leasing rules.

Real Estate Investment Trusts

Real estate investment trusts or REITs are privately operated corporations such as office branches, restaurants, shopping malls, etc. They are private property corporations. One may invest through the stock market options in these firms.

Commercial Properties For Real Estate

Commercial properties can be leased or rented. It includes an apartment complex occupied by a firm, a petrol station, and a shopping complex with many specific firms and licensed cafes. Without the company owning the premises directly, the company may lease such apartments.

Residential Properties For Real Estate

Residential real estate is always in demand. It includes apartments, houses, and holiday homes. Many residential property owners make money through rentals and the appraisal in value when they sell it to buyers. 

Fix And Flip

It is the strategy of purchasing a property, renovating it, and then selling it at a profit. It involves purchasing a property that requires repairs and renovations and selling it at a higher rate.

Rent A Room

You can even offer one of your house rooms for rent to earn some monthly income. 

Real Estate Vs Stock Market

Real Estate

You cannot fix a prospective date to purchase and sell the house on the same date. Nonetheless, you can sell a house when the cost increases to get a higher return on your investment. Also, you can wait for fair market conditions and find a desirable and genuine buyer to sell to. Such investments offer rental earnings and increase your cash flow over the long term.

Stock market

Stocks can be good if you have some experience and know the market may get unpredictable. You don't need much money to invest in stocks, as there are plenty of ways to invest in them, from mutual funds to a stockbroker. However, they tend to be riskier, especially if you're handpicking stocks and overly exposed to risk.

Shares provide dividends, and one can see immediate appraisal or a drop in value. The investment is highly volatile though it is more liquid than real estate.

Borrowing against your shares can be less complicated as you're allowed to borrow up to 50% of your stock portfolio to buy securities or any other asset you choose to purchase. The loan accrues interest, but you can pay it back anytime through a cash deposit or by selling some securities and using that cash. Also, investors get options to diversify in various sectors and stock markets.

How To Invest In Real Estate?

If you're keen to generate an income from property, have a moderate amount of capital to invest and have a long-term view of your investment, a buy-to-let property may be the best option if you're purchasing real estate as an investment. However, in that case, you will need to factor in the additional costs that include utilities, repairs, maintenance, insurance, and other taxes — even if you're not living in the home.

While there are great areas to invest in all over the U.K., you can check markets in the North and the Midlands, which offer cheaper properties with higher rental returns. 

If you are an overseas investor, try to get into a joint venture with someone who knows the local market, especially if you cannot come to the U.K. to do the initial research yourself.

Why Is Real Estate A Lousy Investment?

Many real estate markets aren't quite structured or transparent marketplaces for average buyers compared to other solvent investments.

Specific assets cannot be traded explicitly, posing as a problematic barrier to price determination and growth potentialities.

Although real estate investment has many risk factors, buyers can get professional help to handle the deals. Even experts in this area may face issues due to declining property rates or rentals. Covid lockdowns and work from home culture led to a phase of voids when the houses remained unoccupied, and renters moved out of the city to remote areas to work from home. 

As a result, some investors buying apartments in busy cities in the post lockdown phase opted for detached homes in less popular markets.

Some local and overseas buyers invested during the lockdowns to benefit from low-interest rates and favourable exchange rates.

Is Now A Good Time To Invest In Real Estate?

The appetite to invest in property across the U.K. has risen. It is happening as buy-to-let landlords have found ways to navigate legislative changes.

Additionally, the U.K. property market has remained remarkably resilient throughout recent economic uncertainty, and the rental sector is seeing ever-increasing demand.

Most people view the house as the best investment, and landlords who invest in the right locations earn great rental yields and get capital appreciation over the long-term often reap the biggest rewards.

Landlords Are Buying More Properties

According to some studies, in the first three months of 2022, 13.9% of properties were bought by buy-to-let landlords, up from 12% in the first three months of last year.

Additionally, the data from some firms show - that Q1, 2022 had the highest percentage of landlord purchases since 2016, where buy-to-let landlords accounted for 15.9% of all homes sold.

During the post covid lockdowns, many desired to invest in Real Estate U.K. due to following reasons- 

Speedy Growth

Real estate offers the safest investment opportunity with maximum stability. Higher returns are expected when the situation gets normal after lockdowns. During the Russia - Ukraine war, buyers from Russia and the Middle East invested in European cities. 

Hedge Against Inflation 

Investors from overseas look at the highest yielding areas of the U.K. to hedge against inflation and maximise their returns. So far, in 2022, 71% of buy-to-let landlords bought in the 50% highest yielding areas. It is up from 57% a decade ago.

Accessible Risk-Free Markets 

Builders offered dream homes at lower rates in the U.K. during the lockdown. In addition, many overseas buyers from the US, Canada and the Middle East wanted to buy new properties, as it is considered low-risk. 

The government offered legal support to investors; banks offered loans at low-interest rates, and the currency exchange rates were attractive. Nevertheless, tax on such investments increased in the post lockdown phase, and ROI declined. 

Advantageous Home Loan 

In the last 5-6 years, prices & interest rates remained low and unchanged. The interest rate is floating around a decade low, making it the best time to invest in real estate.

Should You Invest In Real Estate Or Stocks?

Choosing one among the two is not easy. If you want to select between stock and real estate, there are various things that you need to consider. Moreover, you need to research both areas. 

Stock investors don't get the same tax discounts and have a greater tax burden when they sell their products.

Whether you're purchasing a buy-to-let, a property to develop, or an off-plan new-build to 'flip', you will have to research the market to know what you should pay for. Investment in properties requires regular expense on maintenance, though one may not be sure of the rental income.

Buying property offers a backup option for an emergency where buying and selling a home takes months to complete, but stocks can be bought and sold in a day.

Depending on personal choice and experience of the area, one can determine and diversify their options. 

Is Real Estate Investing Still The Best Way To Build Wealth?

Real estate investing has different potential cons — both stresses and financial risks. Nevertheless, many people invest in real estate to supplement their retirement income. They own the property and get monthly cash flow. Some invest for tax benefits, and others buy to gain long-term appreciation in real estate. 

If you want to leave a legacy for your grandchildren behind but do not consider cash a good option, passing real estate down can be even better. Also, it provides a way to get emergency money anytime in future.

Purchasing houses and renting is a sensible option. However, no matter what you choose to invest in, make sure you take time to research the viability of the option.

Why Rental Properties Are An Excellent Investment?

Britain's private rented sector continues to grow. Almost 20 per cent of English households rented privately in 2020, up from around 10 per cent in 2001. The markets are dominated by individual landlords who own a handful of properties. Although there are various investments that you can try out if you are in the real estate market, rental properties are the safest and most trusted investment. 

The best part of the rental property is that you can buy it with leverage, you make mortgage repayment from rent, and the rents keep growing as the demand for houses increases. 

First, when you rent, you collect an additional monthly income stream. And when you're ready to sell, you likely have built equity and have the chance to pocket earnings. There are many pros to buying a property outside your main residence to rent it out, either short-term or long-term. So long as the rent you pay covers or exceeds your monthly mortgage payments, you could make a good profit.