How to fund your first property investment
There are three key ways to get started investing in property –
Using your own savings
Property is always a great investment.
As well as being an appreciating asset, it provides passive income from rental payments. There are several tax-efficient ways that you can invest in property in the UK with money earned abroad. In some UK locations, you can purchase a flat for as little as £30,000-£50,000 which is perfect for a cash purchase.
The downside of using your own money for anything more expensive, is that your funds are now tied up in the property. If you are planning to hold on to that property for many years, there is a very high opportunity cost to the money that is tied up for that length of time.
One way to avoid this is to put some cash into the deal, but make use of debt or leverage to cover the remaining balance. Taking a mortgage out for a residential property reduces the capital that you have tied up in the deal.
Over a few decades as the value of the property increases, you can remortgage and withdraw your initial amount.
This means you are able to use your funds in other areas. This method also helps you afford a property that is above your cash budget, but still remains profitable even when including the mortgage payment.
Real Estate Investment Trust (REIT)
By investing in a Real Estate Investment Trust (REIT) you can access the upside of property investing without any building maintenance, property sourcing or tenant management. Many individual investors will contribute to a common fund and the money will be used to purchase real estate.
This operates more like a mutual fund than a property purchase, but you will find many REIT’s available with low entry fees. It’s a great way to learn more about international property markets and benefit from the capital asset growth of investments that would have been out of your price range.
However, returns will be less than going direct with your own property investment – there’s no capital appreciation. You’ll also be open to additional tax liabilities and can often risk greater interest fluctuations.