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Investing in a U.K. Buy-to-Let Property

The recession in the global market has left its mark on the U.K. property market. As a result, falling property prices and climbing rents across the U.K. are making buy-to-let homes an attractive source of income for international investors.           

"There's a big opportunity in the U.K. at the moment" to invest in buy-to-let property, says Ronnie Ludwig, partner at Saffery Champness, a U.K.-based chartered accountancy. "Property prices in a lot of places have collapsed and understandably foreigners are seizing this as a good investment opportunity."

When international investors do find the right foreign properties, they can use a trusted online foreign exchange service to wire money transfers to the U.K. for their down payments abroad without enduring the long lines and slow processing times that can be associated with other types of financial services. By signing up for email market-rate alerts, individuals can monitor preferred exchange rates for converting dollars to pounds when investing in U.K. property.

“When you’re making your investment decision, consider whether your principle aim is an investment yield or capital appreciation. The perfect investment property is one that has both.”

— Sharief Ibrahim, divisional lettings manager at haart

Better Time to Buy Than Rent Foreign Property

With risk-averse banks not lending as freely, it's more difficult now for first-time buyers to secure down payments. That means would-be buyers are renting instead, which is contributing to a "huge surge" in rents, says Sharief Ibrahim, divisional lettings manager at haart, an independent U.K. estate agent and letting agent based in Colchester, England.

"Rents have increased in the U.K. steadily over the last three to four years, and they're currently at an all-time high," Ibrahim says. "Consequently the return on an investment is very good for prospective rentals."

Look at the Yield

The "yield," or the annual rent divided by the value of the foreign property, is the first factor U.K. investors should look at when considering a buy-to-let home, Ibrahim says. "Anything over 6 percent is considered a good investment opportunity when compared with the returns available from other sources of investments such as stocks/shares, ISAs, etc.," he says.

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"For example, a property with a sales value of £100,000 would generate a monthly rent of £500, or an annual rent of £6,000," Ibrahim says. "To understand the yield for that property, you would divide the annual rental income (£6,000) by the sales value (£100,000). That gives you 0.06. You would then times that by 100 and that would give you a yield of 6 percent."

Consider Capital Appreciation

It's also important to look at the U.K. property's potential for capital appreciation. For example, a Victorian-period house that's been converted into a two-bedroom flat may be more expensive to buy than a recently-built flat. But when it comes time to sell, the Victorian home will probably appreciated more in price than the flat, because generally there is more demand for period properties, according to Ibrahim. In this case, the yield may be lower, but the capital appreciation is higher.

"When you're making your investment decision, consider whether your principle aim is an investment yield or capital appreciation," he says. "The perfect investment property is one that has both. But those are few and far between."

Buy in a Popular Location

Select an area for a property investment that has a strong demand, such as a city with a big, urban center. In these places, the chance of vacancy decreases because there is a "constant flow of tenants," Ibrahim says.

Short-term or holiday lets, such as a cottage in the countryside, can potentially offer a better return on property investment. But Ibrahim cautions that these types of properties are best suited to sophisticated investors since they require more hands-on management, and they're more expensive. 

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