There are lots of methods for investing in the UK, but some suit expats better than others – in particular, methods such as flipping and HMOs can be difficult from outside the UK. Regardless, let’s examine a few of these methods in more detail:
Buy-to-Let is the go to property investment option and arguably the easiest to manage from abroad. Great for those with money to invest and a deposit ready to go. With the low mortgage rates in the UK at the moment, investing your hard earned money in this way is even more tempting – though you should be sure that your investment will stand up to a rate rise. In general, however, the rental market can be an attractive alternative to low interest rate returns offered by the banks and a volatile stock market. Note that there is a huge demand for housing and not enough new housing being built, which can mean long-term rental return is possible.
Keep in mind the ever-changing tax rules imposed by the UK government. From April 2016 investors with more than 1 property need to pay an additional 3% stamp duty on their additional purchases. Between now and 2020 you’ll gradually no longer be able to claim mortgage interest as a tax exemption. If you pay tax at the higher rates you are now worse off – you’ll pay even more tax if you have mortgages in your own name, rather than a company name (which means setting up a limited company under which to attach your property investment can be a wise tax move). This basically means that property investors are now being taxed on turnover, where profit is considered the net figure after all deductions.
Noting these potential drawbacks, it’s important to say that demand from tenants remains strong and is rising, rents will rise in line with inflation and ultimately in line with interest rate hikes. Be sure to research the market thoroughly, and choose an up and coming area – be sure you aren’t tying your capital to property that could decrease in value.
If you’re not quite at the point where outlaying a large deposit is possible, an alternative can be to consider a listed real estate investment trust (aka REIT). It feels a little more like stock trading, but means that liquidity issues are tempered. REITs are essentially companies that manage portfolios of real estate to earn profit for their shareholders, and avoid corporation tax (unlike buying shares in property companies). So, you’re buying shares in essence, but these allow for diversification from other avenues of investment like equities and bonds, being based on the property market.
Returns from this avenue of investment is based on the income paid via rent, income growth as rents increase and the capital value or overall actually building value, which would hopefully increase over time. Of course, the rate of return will vary by sector – e.g. Rental growth in central London has risen steadily by 5.4% over the last five years. Retail on the other hand struggled somewhat since the 2008 downturn, and as a result of increased online shopping, though this has begun to turn more recently.
It is very worthwhile to consider similar trusts in the northern powerhouse – Manchester, Birmingham and Leeds are experiencing faster-rate rental growth in comparison to London.
Houses in Multiple Occupation
Houses in Multiple Occupation (HMOs) are complex and require a time investment, making them a little more tricky for expats. However they can offer great returns for those who are not investment beginners.
In a more general vein, the best way to ensure a return is often through purchasing a flat over a house. Particularly of the 2-bedroom variety – these are much more flexible, particularly if you look at smaller properties that have the potential to be expanded upon. Targeting these can mean a more modest initial outlay of funds, with the potential for steady return.
Look for areas which are likely to attract young professionals – good quality, low-cost shared accommodation which attracts this class of tenant can mean turning a single-occupancy property into one with the potential for multiple-occupancy, increasing capital gains.
Investors in this area will generally facilitate separate rental agreements with several tenants in one property, an all-inclusive price which means that the owner has to ensure utilities and council tax are covered. This is advantages as if one person leaves, the rest continue to pay rent. This can mean though that the owner has to get involved – they have to ensure the right kinds of people are living together, who are reliable.
With more upfront money on hand, it can also be great to buy up bigger properties to break down into several apartments. This requires a little renovation, which requires supervision to get the best value. In this way, this can be a tricky option for expats – make sure you have trustworthy overseers on the ground!
Flipping is difficult from abroad – it becomes much easier if you have local knowledge. Flipping in particular has become more difficult since second properties attract capital gains tax.
However, the idea that you can buy and sell within a few months or years for profit is going to be tricky – it takes serious local knowledge and bargain hunting to make this avenue worthwhile. Generally, renovations or extensions will have to form a big part of this method, meaning that it can be hard for expats who can’t oversee works. Having a trustworthy network in the UK can assist here. Note also that banks are not as keen to lend to flippers, preferring long-term deals.
Overall, it’s important to consider your individual goals for your investment. How hands-on do you want your investment to be? When do you want to see a return? How much risk are you comfortable with? It pays to shop around and do the maths thoroughly, and have a clear plan!