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October 10, 2022
Jeremy McGivern
Posted in: Property for investment

Property for Investment in London: How to Choose the Right Area

In boom times it is very easy to believe that buying property for investment in London is a risk-free option. I cannot remember the number of times I have heard friends and potential clients say: “I am going to invest in property. Shares and pensions are erratic. At least if I buy a property, it will always be there”. Or the classic “You can always live in a property, but you can’t live in a share certificate.”

Unfortunately, London property is not a simple investment. Just because you have lived in a house does not mean you understand property any more than you understand in which oil firm to invest just because you use petrol.

Of course, a lot of people have made a lot of money investing in prime London property, but if it was such a simple game how come some have lost fortunes too?

The First Step To Buying Property for Investment in London

Before you even consider choosing areas, you need to have a basic plan. The very basic starting point is to decide what your investment criteria are. This does not mean what type of property you want to buy. It means working out what return you want from your property. 

  • Do you want a good yield or are you only interested in capital growth?
  • How long do you want to keep the property?
  • How much equity do you want to have invested in the property?
  • If you are buying or adding to a portfolio do you want to have different types of property to attract different types of tenant to spread your risk?
  • Do you prefer being a specialist in your particular niche?
  • What is the minimum profit or yield you will accept?
  • What are the tax implications of your plans?

This last point is exceptionally important. It is very easy to focus on the obvious maths of investing in property, but if you don’t consider the tax implications in advance you are in danger of wasting not only a lot of time but money too.

Some of the key taxes that you need to consider are Stamp Duty Land Tax, Capital Gains Tax, Income Tax and Inheritance Tax. And if you are an international buyer bringing money into the country, it can be even more complicated, so I strongly recommend that you speak to an experienced and reliable tax adviser before you do anything else.

property for investment in london

You then need to establish the best means of achieving your goal:

  • Do you want a basic buy-to-let?
  • Do you want to buy, refurbish and sell or buy refurbish and let?
  • Do you simply want development sites?
  • Are you looking for sites that you can turn into HMO’s to increase the yield?
  • Are you looking to target the “super-prime”, “prime” or standard market?

A word of caution: there will be some people who will advise you to focus on yield while others will tell you to focus on capital growth. Meanwhile others will tell you which areas you must invest in, often based on what they like rather than on your investment criteria.

Unfortunately, such advice, while well-meaning, is far too general to be of any real use. Quite simply, if you are not aware of the strategy that is most successful for the area in which you are investing (and vice versa), then how do you expect to make an intelligent decision?

Once you have your investment plan you can then start the search.

It is essential that you become an expert in the type of property and area in which you have decided to invest. Trawling the websites is only a tiny part of the process and is unlikely to uncover the best opportunities. You must call all the estate agents in your target areas at least once a week, so that you are on their “preferred” buyers’ list and constantly be on the lookout for profitable opportunities by sourcing off-market opportunities too.

If you simply rely on the websites, then you are doing exactly the same as every other buyer, so what advantage does that give you?

When you have found a potential investment, you must do your research:

The classic mistake amateur investors make is to take the easy route and simply accept figures given to them by the selling agent. It is imperative that you do your own research. Remember the estate agent’s legal obligation is to sell his/her client’s property for the best price possible.

In short, the owner is their client and you are not!

  1. You need to find out from other independent letting agents what similar properties rent for in the area.
  2. You need to find out what similar homes have sold for (when refurbished) in the area from at least three other agents.
  3. You need to get a quote from three builders to have a reasonable idea of what the build costs might be.

If you do not have this information you are doing nothing but gambling.

The Second Most Common Mistake Amateur Investors Make

Underestimating the cost & being overly optimistic/pessimistic:

Again this is partly due to the fact that they have failed to carry out their research. You are reading this so, you are clearly aware that there are dangers. Here are a few points to consider in your calculations:

  • Have you included the annual service charge and ground rent?
  • Have you included letting agents’ fees (c. 15% for a fully managed service)?
  • Have you included stamp duty and other purchase costs like solicitor’s and accountant’s fees?
  • Have you included maintenance costs?
  • Have you realistically allowed for “void periods”, i.e. when the property may not be tenanted (allow for c. 10-15% of the year)
  • Mortgage Payments

It is very important not to be overly optimistic or pessimistic because in either instance you can make an expensive mistake by either overpaying or ignoring a perfectly good investment because you have been overly cautious.

I know I repeat this point but there is no substitute for having a forensic understanding of the market in which you plan to invest. There will always be an element of risk, but it is for you to establish whether the investment return warrants the risk. However, it always pays to have a plan “B”. In the worst-case scenario do you have a “get out” clause.

Important Note: IF YOU THINK YOU MIGHT NEED ACCESS TO YOUR MONEY AT SHORT NOTICE THEN INVESTING IN LONDON PROPERTY IS PROBABLY NOT THE RIGHT INVESTMENT FOR YOU. It is a relatively illiquid asset, so if you think you might need access to your funds with just a month’s notice you should look at different options.

What are the best areas in which to invest in London Property?

To add another layer of complexity, external factors can also affect which are the best properties to invest in at any given time. As an obvious recent example, one just has to look at the pandemic and lockdown.

This changed what were the most sought-after properties. Previously, apartments had massively outperformed houses, but since the pandemic houses with good gardens or direct access to communal gardens have been the best performing properties.

In my opinion, we are about to see another shift and there are also areas which will significantly outperform the market in the next few years. Unfortunately, this is information that I will only release to our clients, but if you plan to acquire an investment in London, you have to keep an eye on the major trends and changes that most influence prime central London property prices and yields.

Contact Mercury Homesearch

If you would like to discover more about property for investment in London, simply email me at jeremy@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK).

Topic: Property for investment in London; Mercury Homesearch

About the author, Jeremy McGivern

My name is Jeremy McGivern. I am the founder of Mercury Homesearch, the internationally renowned property search consultancy, and author of The Insider’s Guide To Acquiring Luxury Property in Prime Central London. I have been acquiring property in prime central London for clients for over 13 years.

Having physically viewed over 22,000 properties in prime central London, studied the details of over 153,400 apartments, houses and investment opportunities and spoken to 232+ estate agents every week for over a decade.

My advice is in high demand and has featured everywhere from Bloomberg Television, The Financial Times and The Daily Telegraph to Forbes India and Bahrain Confidential.

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