It is often said that 90% of the world's millionaires have accumulated their fortunes by investing in real estate. Indeed, over time, buying or investing in property in London has proven to be one of the most reliable wealth-building options. Having a home or buy-to-let property in London is recognised as an essential element of a well-diversified investment portfolio.
Yet it’s not always easy to be a successful real estate investor, and actually getting started in property investment in the UK is one of the biggest challenges. If you are serious about seeking out the best returns, it’s therefore important to take the time to understand and educate yourself about what drives property markets, the different types of property assets and the investment processes involved.
On balance, there are many reasons international property investment is favoured as a wealth accumulator, and these include the fact that the assets are tangible, unlike stocks and shares, and are subject to less variations in value.
So, how to build wealth through investment in real estate?
When looking for investment properties for sale in London it’s much easier to get started if you have some spare cash. Preferably this should be around 30% of the purchase price of the property you are looking to invest in. Having enough will help in facilitating a loan or mortgage as most fledgling investors cannot buy a buy-to-let property in London or elsewhere outright.
Some of the main routes people use to accumulate wealth from international property investment include:
- Personal home ownership is the most common strategy used to build wealth. Many people aspire to own their own home without appreciating that they are becoming real estate investors but once you buy a property in London, for example, (with a 10 or 20% down payment and a mortgage), you are already a real estate investor!
- The dual effects of consistent demand and inflation mean that the value of such home will, invariably, rise over time, thereby helping to accumulate wealth for the property owner.
- The next step for many people, especially after they have been paying their first mortgage for a few years and their invested equity has grown, is to buy another property. But this time they are acquiring a buy-to-let property in areas such as London, Birmingham or Manchester to rent out and enjoy the benefits of the income stream. It is often possible to obtain a mortgage from a specialist loan provider for such properties.
Not only will the buyer receive rental income but can expect, over time, to see increases in the capital value of the property.
- A popular alternative to acquiring a buy-to-let property in London is to buy a property in poor condition, renovate it and sell it on, thereby gaining a profit. Judicious renovations or improvements can “add-value” to the purchased property and by “flipping” property in this way you can accumulate further capital for investment, being “in-and-out” of the transaction within a relatively short period.
- As a variation to flipping, there is also the “BRRRR strategy” (Buy, Renovate, Rent, Refinance, Repeat) where investors do not sell the renovated property but rent it out and use the cashflow generated from renting it to refinance or secure further loans to buy yet another property, thereby increasing the size of their investment portfolio. In such a way, it is possible to accumulate more than one investment property, diversifying your portfolio as you go.
- Often those investors looking to flip properties or follow a BRRRR strategy will focus on buying so-called “distressed properties” where possibly the mortgagee has defaulted on its loan and the lender has taken possession of the property. Such properties may be sold at prices below market value.
- Where a collection of individuals, either friends or business associates, wish to pool their funds to invest in real estate, they can form a partnership or limited liability company (“LLC”) and make property investments via those vehicles. This means there is more capital available to invest and, accordingly, with a loan(s) it may be possible to leverage with bank finance and acquire several properties at once, instead of organically growing the portfolio.
- For those prospective real estate investors who don’t want to invest directly into property there are indirect investment options such as investing in the shares of property companies listed on stock markets, in property finds which specialise in larger scale property investment or REITS (“Real Estate Investment Trusts”). REITS may be involved in international property investment and are mandated to distribute the majority of their income earnings to investors and may own shopping centres or a collection of hotels.
Investing in real estate by acquiring UK buy-to-let investment properties can produce both rental income (cashflow) and increases in capital value over the longer term.
The fact that most real estate assets can be acquired with loans or mortgages and relatively small down payments of 30-40% means that the overall returns to the investor based on the initial investment can be magnified (usually called “leverage”). This can help investors significantly grow their wealth by the judicious use of other people’s money!