Even though there’s plenty of investment opportunities in the residential property investment sector in London, there are a number of pitfalls that investors must recognise and find their way around in order to maximise ROI and overall success.

For instance, understanding the risks involved, access to finance and market intelligence, personal preferences, experience, etc. are just a few factors that decide how one should invest in a London residential property. Moreover, investors need to be up to speed with all the various processes involved, including all opportunities at their disposal as well as pitfalls – because these will be the ultimate decider in regards to achieving a profitable outcome.

This guide is the only resource you will need to specifically understand how you can make the most of your London residential property investments.

Whether you’re an experienced investor or just setting foot inside the residential investment marketplace, “Our Ultimate Guide on Residential Property” has all the insider tips and tricks you need to know in order to enjoy sustained profits and maximum ROI from your residential property investments.


How to find your next development opportunity

One way to isolate development opportunities is to look for areas that are undergoing significant regeneration.

Areas that are gentrifying and that are seeing a rise in economic development will likely draw people to want to live in those neighborhoods, and so developers are often keen to take underutilized land and create either residential or mixed-use plans. Doing plenty of research and finding areas that are set to receive developments can help you start your search, as can attending networking events and speaking with developers directly. You could also consider putting yourself down on mailing lists and signing up for newsletters to be among the first to know about new opportunities. Of course, word of mouth is a powerful marketing tool, and so working with an investment firm that specializes in finding planned projects before they are highlighted to the public is a great way to source new development opportunities.


How to correctly appraise your development

Gross Development Value, or GDV, is a metric that will help developers make accurate financial projection for their project.

This metric seeks to determine the value of the development project once it is complete and all units have been sold. One of the most common ways to determine the value is to work out the value of the land and then the potential profit. To work out the GDV, you may wish to use the common formula:

Land = GDV – (Construction + Fees + Profit)

This is a formula often used and relied upon by experts, who utilise this to determine the prospective value of a development.


Auctions: a list of some of the best auctions in the country

At Blue Alpine, we have attended numerous property auctions throughout the year, and know where to find some excellent deals.

Click here to view a comprehensive list of auctions happening throughout the UK, and see below a few of the ones we personally recommend:

VAT and property things to know before you buy

VAT is one of the key things to think about when it comes to maximising the amount you can make with your development. New developments are zero-rated for VAT, but separate services that are instructed by an architect for example, may have VAT payable on them. This may also be the case when it comes to the materials required for the build. If you are unsure about VAT or any other aspect of the financial side of residential development, our experts are here to help.

Residential development checklist

  • Legal title and Searches
  • Access to the development site
  • Utility and services
  • Planning
  • S106 Payment
  • CIL and other Levy’s
  • Build Cost /CIOB Contracts
  • Finance costs
  • Understanding tax implications


Why choose residential property?

Smart, informed residential property investment has the potential to provide lucrative returns.

The biggest asset class in the UK, the residential sector is valued at
circa c£4,224bn, while the value of the commercial sector is estimated to be around £820bn. Residential property is one of the strongest performing asset classes, with figures showing that over the past ten years, residential property has “been the best performing investment asset over most timeframes over the past thirty years.” For some investors, buying residential is a means to diversify an existing portfolio, while for others it is their sole means of wealth generation and even retirement planning. Many people choose to buy residential in addition to commercial, and they would be wise to do so, as this sector has delivered strong returns on investment over the past decade. Over the past ten years, the UK residential

property has provided a total annualised return of 9.6 percent compared to the 6.9 percent returned by commercial.

There are numerous opportunities to be had within this property sector as well. Ground rents, purpose-built retirement or student accommodation, social housing, HMOs, new developments and regeneration projects all provide plenty of opportunities. Whether you wish to buy and flip or buy-to-let, there are a number of different ways to generate wealth through residential property investment.

In addition to strong returns, there is also the case of supply and demand, especially in prime markets such as London, Manchester, and Edinburgh. Elevated property prices, increased demand and tightened mortgage lending criteria has relegated many first time buyers to the rental market; the average first-time deposit is now in excess of £26,000, a figure that has double from £13,000 ten years ago. It is now a figure that is roughly 79 per cent of the average annual income, meaning saving this sum is out of reach for many.

As such, Britain’s rental market continues to boom, putting investors and landlords at a distinct advantage.


Where to find residential property deals

There are a number of places to source residential deals, whether they be on the market or off market.

On market means the property has been listed, and is being actively advertised as available for sale to the public. Off market properties are not available to the public, and it is through select channels that only targeted buyers are aware of their availability (this is often the case with ultra high net worth sales, for example).

Given that over 90 per cent of property searches begin online, this is an easy place to start. Utilising search engines as well as dedicated websites that list investment opportunities can help you isolate new opportunities, as can working alongside an estate agent. You may also wish to meet with one in person to discuss your investment goals to see if they are able to help – it may be they have received word of properties that have yet to be listed but would make an ideal sale for an investor, and they are able to put you in touch. For example, if the sellers are in a hurry, they may be swayed to accept a cash offer even if it is below the listed asking price, as it will expedite the sale and negate the need for putting the property online, staging, and going through the traditional steps and paperwork involved with a conventional sale. As an extension of this, working alongside a designated property investment company such as ours can provide you with exclusive information about residential opportunities.

Off market, there are still ways to discover potential property deals. For example, property auctions are often frequented by investors, as the homes for sale are often far below market value. It could be the property has been repossessed by the bank, or those sellers are in a hurry to rid themselves of the property for one reason or another. This is a fast-paced way of buying homes, but it can be attractive for investors in search of property “projects” that offer some potential for value increase. You can also consider approaching developers directly about the sale of new units. Many will have some set aside for pre-sale to drum up interest before the properties go on the market, which has been of particular interest to foreign investors buying in the UK.


How to buy residential property at auction

Buy-to-let investors can often be found at property auctions, hoping to bag bargains that have yet to make it onto the market at a price that’s below the market value.
Auctions are a great place to discover properties that may be beyond the usual realm of estate agents, and as there is no housing chain to enter, it’s a great and fast way to come across some potentially good bargains. Investors are often cash buyers, and so a quick sale and fast turnaround to let the property out can be achieved thanks to these lower price tags. Many of these properties may not be mortgageable, meaning they require some substantial repair work; for an investor looking to buy below market value, conduct improvements, and generate revenue through a sale at a higher price, auctions provide a great deal of opportunity. Another pro for buying at auction is the fact that there may be less competition, given that the properties are not on the open market.
However, there are some things to bear in mind when buying at auction. As the process is so quick, there’s little time to conduct due diligence on things like the area, letting potential, and other essential information. There will be a catalogue of properties available for auction ahead of the actual day, so it’s imperative to get your hands on one and do necessary background checks before starting the bidding. If the property is in run-down condition, you may wish to arrange a viewing and indeed a survey prior to purchase to make sure it does end up being a bargain and not a headache! There are also some acquisition fees to take into consideration, such as fees payable to the auction house, conveyancing fees and – dependent on the value of the property – Stamp Duty.
At Blue Alpine, we have many years of experience buying at auction. Working alongside our experts can help steer you clear of costly mistakes whilst ensuring you gain access to the best off market opportunities possible.


How to finance your deal

While homebuyers may rely on a conventional mortgage to purchase a property, investors have a few more options open to them.

Of course, there are buy-to-let mortgages available that have been specifically designed to help landlords buy second homes. Private lenders are also available to provide funds specifically for investment purposes.

If your plans involve more than one investment property however, you may wish to look at alternative methods of financing. It may well be that you use the revenue generated by rental income or through the sale of an investment property towards the cash purchase of another. Another option is that of a joint venture, or JV. With this finance strategy, a buyer partners with another investor or an investment firm to finance the project together. It could be a 50/50 split or divided in other ways – for example, one party may provide more of the capital in exchange for not having to do any physical work to or handling of the property.

When considering the financing of your home, remember to factor in the acquisition costs. Things like a valuation fee, Stamp Duty (if applicable), a surveyor’s fee, solicitor’s costs and other upfront payments can increase the cost of buying a property and should therefore be factored in. If you are instructing a letting agency to find tenants and manage the rental on an ongoing basis, make sure to factor this into your monthly cash flow estimates as well.

You should also keep up to date with tax changes, as the tax relief and incentives available to landlords can change with each budget. For example, as of April 2017, the tax relief available for financing costs to landlords with residential properties will be restricted to the basic rate of Income Tax. Working with experts in this field will give you an advantage when it comes to keeping on top of these changes to ensure that you are always legally compliant whilst maximising your revenue at every opportunity.


How to select an investment property

Selecting a rental property is different from choosing a primary residence.

When choosing a home for yourself, you are likely looking for properties that will match your lifestyle, while when looking for an investment, you are searching for something that appeal to the lifestyle of your tenants whilst still generating cash flow for you. Firstly, there’s supply and demand to think about. Ideally, you want to select a property in market for which there is a strong demand for rentals, so research up and coming areas that are gentrifying and drawing people into the neighborhood. Areas that are undergoing a redevelopment and are receiving things such as new amenities, shops and sources of employment all make excellent areas.

You should also think about the tenant demographic; for example, purchasing an HMO near to a college or university will likely attract student tenants, while buying a modern apartment near to an employment hub will attract young professionals. Properties near to schools, especially schools with desirable Ofsted ratings, will be highly attractive to parents.

When it comes to choosing a property itself, as is the case when buying a primary residence, location is key. Homes that are near to public transit links and roads can generally command higher rental rates, as can those situated near to amenities and shops. You may also want to look at things such as the condition of the property and the average rents of nearby similar properties to help you estimate your potential rental income.


Completing the purchase

Once you have found the ideal property, now it’s time to complete the sale and decide on the next steps.

The timescales for closing on your property will depend on a number of factors, such as the payment method (a cash sale is generally much quicker than that which involves a mortgage). It’s vital to have a survey carried out by a reputable and qualified expert to ensure there are no unpleasant and costly hidden structural secrets. Your solicitor should look over all of the paperwork and ensure checks are carried out with the local authority to look for anything that could impact the sale of the property. They were also carry out drainage searches and environmental searches to ensure the land on which the property sits isn’t in any way compromised.

You will need insurance in place ideally before signing the contract, and once the documents have been signed off, the exchange can begin. At this point you’ll need to pay any Stamp Duty due and ensure you keep safe copies of the transfer deeds and other paperwork. From here, you can now take the next steps with your investment, be it fix-and-flip or a property to let.

Whether you are ready to now let your property and start generating income through monthly rent or are planning a renovation that will transform an underutilised asset into a high value property, your investment journey is now ready to begin. For more information about how Blue Alpine can help you on your way to success, contact us today.