How To Get Into Property Investment In London: My Guide

With sound judgement and careful planning, London property investment can be very lucrative, but there are several risks to watch out for too.

If you’re not sure how to get started, I’ll share some tips with you in this guide. First, let’s review some terminology.

Returns from London property investments come in two forms – capital appreciation and rental income.

Capital appreciation is the increase in your property’s value over time. As property prices rise, so does the equity you hold in the investment.

When you eventually sell, this translates to capital gains. While occasional dips occur during economic downturns, property values in London tend to rise over time, as these house price statistics from Land Registry data confirm.

Rental income is the monthly rent you receive from tenants who live in your property, providing a reliable source of passive income over time. How much you can charge depends on a range of factors – the size of the property, its location, market trends and so on.

Buy-to-let tends to mean purchasing residential properties to rent out. Another option is commercial buy-to-let – buying offices, retail spaces, or warehouses for businesses to rent.

The buy-to-let strategy is a good fit for investors seeking a combination of regular income and the potential for a long-term return on investment.

Now we’re all up to speed, here are my eight steps to investing in the London property market:

#1 Learn about the market

As per numerous independent sources, including the renowned Cities of Choice report from BCG, London is one of the most desirable cities in the world to live in.

There are many reasons why and I’ve previously written about 18 of them in my guide on living in London – things to know before you move.

Yet at the same time, there’s high demand for properties and low supply. There’s a housing shortage in not just London but throughout the UK, with reports suggesting a backlog of up to 4.3m extra homes needed.

It means that there will be no shortage of tenants interested in renting your property. Also, just as property prices tend to rise over time, the average monthly rent increases to – between 2022 and 2023, the increase in London was 15.2%, reports the BBC.

If you’re looking to invest from overseas, you’re not alone, with approximately 11% of homes in London owned by non-resident landlords, according to Property Reporter. I’ve recently covered how the non-resident landlord scheme works.

#2 Choose the right location

Think about the type of tenant you’re looking for and find out where in London they want to live. For example:

• Properties near underground stations, especially in central London (zones 1 and 2), are in high demand for working professionals. Areas popular with professionals working in finance or technology are prime investment targets.
• However, houses in more relaxing parts of London a little further out are also very popular, particularly for tenants who don’t need to commute daily. Family-friendly areas with good schools are also highly sought after.

Everyday essentials such as shops, restaurants, gyms and parks within walking distance makes a property more attractive to tenants.

Some of the best investment opportunities in London are those in areas that tenants see as up-and-coming neighbourhoods, often undergoing gentrification. Spot these areas early and there’s a good chance the property will noticeably rise in value over time.

#3 Budget for your investment

The main options to finance your property investment are:

• Cash: This is the most straightforward option, as you avoid interest charges and own the property outright. Naturally, it requires a significant upfront investment.
• Mortgage: A mortgage lets you use a bank loan to finance a large portion of the purchase price. You will still need a cash deposit – at least 5% but the UK average is currently 19%.
• Remortgage: I’ll cover this shortly.

Beyond the purchase price of the property, there are also several tax requirements to factor into your budget.

#4 Understand your tax requirements

These include:

• Stamp Duty Land Tax (SDLT): This tax applies to many London property purchases as they will exceed government-set thresholds. Rates increase with the property value and depend on whether you are a first-time buyer.
• Income Tax: The government taxes earnings from your London property at your income tax rate. You can deduct certain expenses such as mortgage interest, repairs, and management fees to lower your taxable income.
• Capital Gains Tax (CGT): If you sell a property, it is subject to CGT assuming there has been some capital appreciation.

CGT rates for residential property are 18% for your entire capital gain on overall annual incomes below £50,270 – but 24% if it is above this threshold, as TaxScouts confirms.

Also bear in mind that you pay council tax on an empty property.

#5 Assess the available properties

Once you have a budget in mind, it’s time to explore the market for your first property investment.

Take your time when choosing between properties – these are 16 questions to ask when viewing a house. If you’re buying an apartment, important questions include:

• How many years are left on the lease?
• How much is the service charge?

Want to start assessing your options now? Take a look at the current Fine Living portfolio and also a selection of specially selected investment opportunities.

#6 Complete the purchase

The property purchase process normally takes several months. For an overview of the steps, take a look at my first time buyer checklist.

Once the seller accepts your offer some of the remaining steps include appointing a conveyancer or solicitor, property searches, the legal transfer and exchange of contracts.

In the past I’ve also covered what property searches are and how long they take.

Once the property is yours, to begin earning rental income you need to start finding tenants to move in.

The exception is if there’s a sitting tenant or a tenant in situ. This is someone who continues renting after the previous owner sells the property.

#7 Manage your property

At this stage in your property investment journey, you’ve achieved a lot already and you’re close to earning some passive monthly income through the rental payments.

There are still a few steps to take. London councils have landlord licensing schemes in place, so you’ll need to apply for a certificate.

Landlords also have several legal responsibilities such as ordering an energy performance certificate (EPC) before tenants move in – here’s how to improve the EPC rating.

You’ll also need a tenancy agreement, a marketing plan for the property, the means to screen tenants and a secure Tenancy Deposit Scheme.

Here’s my guide to renting out your house or flat and an explanation on how right to rent and other tenant checks work.

Once you’ve chosen a tenant, host a check-in and then after they move in, be on standby for regular inspections, plus some ad hoc property maintenance requests.

If that all sounds like a lot of hard work – it is! That’s why many property investors choose experienced estate agents to oversee the tenancy.

Here’s how to choose an estate agent in the UK with my best practices.

#8 Grow your portfolio

Once you have that first property investment secured, it’s time to start thinking about whether to grow your portfolio.

A second property means another opportunity to see long-term returns through capital appreciation and receive extra rental income in the short-term.

The time it takes to grow your portfolio depends on your financing options. Always be careful not to overstretch your resources – remember that property prices and market conditions will fluctuate.

If you already own a property, you could consider remortgaging in order to reinvest equity in additional properties – but of course, this adds another layer of debt.

Final thoughts – Property investment: London

Investing in properties can be time consuming. But get it right and you could see returns in two forms, through the short-term monthly rental income and long-term capital appreciation.

To start seeing what’s out there, browse through the current Fine Living portfolio and there are also some pre-selected investment opportunities.

I hope you’ve found this guide helpful and informative. For other articles, take a look at our blog.

In recent articles I explain how buying property through a limited company works and how to find out what restrictive covenants are on your property, if any.

Here at Fine Living, we have property experience throughout London and stay updated with the very latest market data. We study market trends, migration patterns, local borough updates and new property development news.

It means we can share the information that property investors need to grow their portfolio with confidence. For more information, please don’t hesitate to contact us.

Want to discuss the advice on this blog - or anything else?