Top 5 FAQs in Property Investing

Is Property a Good Investment?

Property is considered one of the most secure types of investments because it is a tangible asset. When compared to other investments such as stocks or cryptocurrency, it is highly unlikely for property to dramatically reduce in value. While gains can be slower, they are much more stable and are often continuously growing. This makes property a more secure and profitable choice for those looking to maximise their returns on investment in the long term.

Investing in property also provides multiple sources of revenue. For example in a buy-to-let investors will receive both rental income and capital growth. Whether you’re looking for immediate cash or long-term appreciation, real estate provides multiple revenue streams to suit a wider range of investment goals.

Furthermore, unlike many other investment opportunities, property allows investors to use a mortgage to purchase a property. Meaning you don’t need to pay the full value upfront. This opens up the opportunity to control a high-value asset with a relatively small initial investment. This creates an opportunity to see larger returns from a smaller amount invested.

What is a BTL Property?

A ‘BTL’ or ‘buy-to-let property’ is a type of property purchased with the intention of renting it out to tenants. A buy-to-let property is usually designed to benefit both investors and attract tenants, through location, appliances, and EPC ratings. When investing in a BTL it is crucial to do the research to ensure the property is in an area of high demand and growth potential.

Furthermore, it is important to understand tenants’ desires in what they want in a property to ensure the property is quickly tenanted and has high occupancy rates. There are many factors to consider to ensure an investment will be profitable and secure.

Factors such as the number of bedrooms, amenities nearby, and transport available are all crucial to staying ahead of the competitive market. If the research isn’t done, an investor could end up with a property that isn’t in a desirable location and receives little interest. However, if the research is done correctly, this form of investment will create a strong, reliable income for investors.

What is a Rental Yield?

A rental yield helps investors calculate their return on investment (ROI). Investors should calculate their predicted rental yields to ensure the property is going to reach their desired income. A rental yield above 5% is considered good and is high enough to see profit from an investment.

Calculating Rental Yields

Gross Rental Yield:

(Annual rental income ÷ property value or purchase price) × 100

Net Rental Yield:

(Annual rental income – annual outgoing costs) ÷ property value or purchase price

answer × 100

Or use our rental yield calculator.

What is Capital Growth?

Capital growth, or capital appreciation, is the increase in the value of a property or other investment over time. Capital growth is calculated by finding out the difference between the purchase price and the current value. This is something an investor will gain once the property is sold. For example, if an investor purchases a property for £200,000 and then in 5 years they sell it at a current value of £210,000, the capital growth is £10,000. When investing in property, capital growth should be seen as a long-term bonus. Investors shouldn’t rely on this for an income as it is a lump sum once the property is sold.

The capital appreciation of a property can be affected by many factors such as location, a supply-demand imbalance, and regeneration. These will all affect the market and desirability of a property, which will have a knock-on effect on the property values. Investors should analyse the market and its trends when selling a property to gain the highest potential capital growth. There may be seasonal dips throughout the years and months of high competition with rising property prices, but overall property prices are steadily rising year on year. However, if an investor sells during a dip, they may lose out on potential growth.

What is Stamp Duty/Land Tax?

‘Stamp duty’ and ‘land tax’ or SDLT is a compulsory payment when purchasing a property. This can vary significantly depending on where the buyer is located, the price of the property, and the type of property purchase being made.

SDLT has recently seen a change. The Chancellor announced a 2% stamp duty rise for second-home buyers and buy-to-let investors that came into effect from the 31st of October 2024. This took the rate from 3% to 5%.

First-time buyers can continue to take advantage of a higher raised stamp duty threshold, allowing them to avoid stamp duty on properties costing up to £425,000. However, for properties priced between £425,000 and £625,000, a 5% tax is applied on the portion of the property over £425,000. For those buying a second property, they usually have to pay 5% on top of SDLT rates if buying a new residential property means you’ll own more than one at once.

Calculate SDLT using our calculator

For the answers to further questions, explore our FAQ Guide or our FAQ page.

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