Property investments in the UK might be interesting regardless of where you live. As you probably know by now I don’t live in the UK but have started a couple of property investment companies in the UK.
In this post I intend to go through in more detail why I chose the UK and why property investments in the UK is suited to international investors like you and me.
The UK market
The UK has a large private rental market and in England it accounts for approximately 20% of total households and has been steadily increasing over the last couple of decades. Basically, renting is very common in the UK and as with many other locations, the younger generations are having a hard time to get onto the property ladder even if there are numerous governmental initiatives to help them.
In general I would say that the standard of properties in the UK are relatively low (at least compared to Sweden) as they don’t seem to take good care of their properties. One reason for this is the unregulated letting market where rogue landlords have done a bare minimum for their tenants. Luckily that’s changing and new efforts are being made to improve the standards so that all tenants can live under reasonable conditions.
There are no caps on rents so the market decides the pricing of rents (not the case in Sweden). This is great because it means that the more value you, or your local team, can add to a property, the higher the rent. Another very common thing is shared accommodation amongst key workers as well as professionals. This again is a big contrast to Sweden where most live with their partners or alone (if not still with their parents).
This has resulted in a strategy called “Houses of Multiple Occupants” (HMO) where you basically use a normal house and upon fulfilling some local council criteria you can house multiple tenants. This has become a very popular strategy as the return (cash-flow) is much higher than a traditional family home (given the right area, type of tenants etc. of course).
Another interesting part with property investments in the UK is that everyone is so used to dealing with tenants so the whole structure of all involved parties already exists. By this I mean all the parties you as an international investor would need to work with like letting agents, project managers, brokers etc. These people you need to have around you to make it all work is what we call our Power Team. More on that in the next section.
Letting properties has been very popular in the UK for a long time and many have been looking at it as an investment for their pension. This has all helped in creating a network of companies involved in properties and all the aspects of owning and letting properties. On top of that banks are very used to lending to private individuals as well as companies for the purpose of investing in properties.
As there have recently been some regulatory changes in the UK, it has become less beneficial owning properties in your own name which means more and more are investing via a company structure. This in turn has meant that the lenders are more willing to lend to small property companies which is great for us as foreign investors!
Setting up a Limited Company (LTD) in the UK is very easy and it can be done online or you can have your accountant assisting you in this.
Another big advantage with property investments in the UK compared to many other markets is that they speak English so all the documentation is in English. This makes it way easier as otherwise one would have to involve translators all the time. Even so, they do on average operate in a very old fashioned way so things take a very, very long time, at least compared to Sweden!
All of the above is leading to more and more foreign investors looking at the UK market and that in turn results in an even broader supply of parties serving the property sector and its players.
Local partners or Power Teams
To be able to do this from a distance, as an owner and not just an investor (investing with someone else), you will need to have a great team around you who can do all the work! The cool thing with the UK is that they have been doing this for years so the setup with the required players already exists and you don’t have to invent the wheel again, nor go hiring staff! Still, as with any cooperation, you will need to find good parties you can trust to build your relationships with.
These are the key players you will need to have in your Power Team:
The first person you want to make sure you get on your team is a good accountant, who also invests in properties. Your accountant will be able to assist you with setting up your company as well as taking care of the bookkeeping on your behalf (unless you want to do that yourself). They will also deal with the Inland Revenue on your behalf.
One of the first things your accountant should be talking to you about is a Directors Loan, which is you lending money to your company in an tax efficient way. This is the part you can use as the lender will lend you a maximum of around 75% of the value of a property. Prior to talking to an accountant you should also have a clear strategy as to what types of investments you intend to do since there are different tax rules for different types of property strategies.
Another aspect of the accounting side are the taxes of course and ideally your accountant should understand your tax situation as else you might want to consider hiring a local tax specialist based on your tax jurisdiction.
You will need a bank for your company but you can’t open that account until your company has been registered with Companies House. The UK is quite old school so setting up an account without meeting with them physically can be a challenge and some won’t accept foreigners. It is possibly but tricky. Personally I have a local bank but actually never really used them for my business as I decided to use Revolut instead. For transactions and FX-transfers, they have been great and I also use them privately. If you haven’t come across Revolut before, I recommend you to check them out here.
Most traditional high street banks will not lend to small property investing companies in my experience. That means that the only thing you really will use your bank for early on is for normal transactions, payments and transfers.
Keep it simple and use a platform you are comfortable with and where you expect the process of account opening to be easy.
Sourcers are the people who can assist you in finding great deals. They should know the local market and the pricing as well as hidden values and work closely with local sellers and estate agents to find the best deals. The really good ones know what you are after and will be there to serve you in the long run. You make use of sourcers instead of having to search for properties on your own! Good sourcers are for sure worth their fees but one has to be careful as loads of less serious players are popping up by the day and they charge 3-6k “finders fee” and this market has been completely unregulated.
You want to find sourcers that have a track record and who can also handle the Project Management if the property you are intending to buy needs any kind of work done to it (also depends on your strategy which is a separate topic).
Sourcing agents are key as they can save you a lot of time and money and if they are good at what they do, your involvement really will be minimal!
Quite funny actually, as I was writing this sentence, my sourcing agent literally just sent me some pictures to update me on the progress we are making on a renovation we are doing on a property in Wales, how cool is that!
If you are intending to do any work on the property you will need a Project Manager as I would not advise anyone trying to do that from a distance… As I mentioned before you ideally want it to be your sourcer as that will give you an even closer relationship with them and they are on the journey with you from purchase to sale (if you are flipping)!
If your sourcer is unable to do it, I’m sure they can recommend one but you have to make sure they have great references!
These hopefully fall under the previous heading of Project Manager. Still if you insist on managing any renovation projects on your own, you will have to deal with builders. That can be very tricky and especially from abroad so this is not an avenue I would recommend if you intend to build a portfolio in a foreign country. Still if you do choose to go down this route, there are plenty of builders in the UK.
The fact that so many people in the UK rent their homes, means that there are tons of letting agents in every village all across the country! It might not be easy to find a good one but it for sure is easy to find them. This is an absolute contrast to Sweden as here we don’t have them at all. Most properties are owned individually or they are owned by companies or councils.
For us as investors this is great as letting agents deal with finding new tenants, making sure the rent gets paid on time, visit the property and involve handymen when needed. If you find good ones, they will take care of “running” the property for you.
We all want to use leverage and in the UK this often happens via a mortgage broker. There a large firms and small firms and they might work with different lenders. The cool thing is that they should of course help you find the best deal that is suitable for you and your needs. Some specialize in commercial properties, others in developments and some just do traditional Buy To Let (BTL) mortgages.
Again, as the concept of using corporate structures when investing in properties are becoming more and more common, so are the lenders in that space. The same goes for those lending to foreigners (via UK Limited Companies). This is of course great news for most of us who are not UK citizens!
At some point you will have to involve solicitors and they are always involved in property transactions both on the seller and the buyer side. If you work with a sourcing agent they are very likely to recommend one to you. Most solicitors can work across the entire UK but not all. Another aspect to bear in mind is that local solicitors (by location of the property) is that they should know the area well etc. So there might be advantages with hiring local solicitors and not using the same regardless of the geographical location.
When dealing with solicitors, be patient as often they are moving forward very, very slowly… A transaction (buyer and seller has agreed on a price) often take around 3 months to complete. The respective solicitors have to talk to each other, documents being sent back and forth etc., so patience is needed!
As with letting agents, Estate Agents can be found at every corner in most cities and villages. Properties are often sold via estate agents and your sourcing team is most likely working closely with several. So when it’s time so sell (in case you are flipping a property), your sourcing agent can most certainly recommend a good estate agent to you.
If you are not living in the UK, you will have to transfer funds to the UK and exchange your currency for GBP. That comes at a cost and you can use different players to make the transfer. Often your local bank is the most expensive but they can do it.
In the UK, you can use FX-brokers. The key role they play is to hold your hand when transferring a large amount to the UK. They tell you what to do and they will do the conversion to GBP for you and then transfer your funds to your company’s bank account.
Personally I’m a bit reluctant to use FX-brokers because of the lack of transparency when it comes to pricing. If you are transferring a substantial amount, you want to pay as little as possible and there are transfer platforms where the costs are clearly stipulated, like Transferwise or Revolut.
FX-brokers can offer other services too, like locking in an exchange rate today but where you transfer your money in the future. Still, this is a service you pay for and the transparency is even worse if you enter these kind of future agreements.
Some like to use them as they can guide you through the process or if they are doing something advanced and transferring funds back and forth between countries. Personally I prefer transparency and will do the exchange as and when I need to at the current rate. I don’t feel comfortable that I (nor an FX-broker) will know what the exchange rate will be in the future.
To sum up the advantages about the UK for foreign investors:
You can find a great Power Team that will assist you with more or less everything making this journey relatively passive for you. All documentation and communication is in English which is very helpful. Renovations and labor is rather cheap and there is great flexibility in terms of what one can do with a property to add value.
As a foreigner, being able to finance around 75% of a purchase by using a company when not even living in the UK is very appealing I would say. In what other countries can foreigners borrow funds to buy a property and with that kind of leverage?
How to get started?
As always, the easiest way to get started and getting off to a running start is by finding people who are already doing what you want to do! Finding good mentors or coaches is the fastest way but also often the most expensive route. So when and how you decide to work with coaches is completely individual but if you find a great one, you can really propel your journey.
I would personally start using the internet to become more knowledgeable about the market I intend to invest in as well as the area etc. One way I find really helpful is listening to podcasts. There are numerous good ones and as they keep adding valuable information continuously, you will be updated with what’s happening on that local market, new regulations, investment strategies and what other investors are doing! Podcasts and groups on social media are great and cost effective ways to get good understanding of a market and its players. My favorite podcast and source of great information for the UK is The Property Hub (www.propertyhub.net).
Once you have started to familiarize yourself with the market, its structure and players you will find potential partners along the way and that’s how you start building your local network and Power Team (if you can’t go there physically).
These are the reasons as to why I believe the UK is an attractive market for so many nationalities and that’s what we are currently seeing. Investors from all over the world are investing in the UK and you could also be one of them.
As always, if you have any questions or feedback about property investments in the UK feel free to reach out and connect!
Actions to take:
- Learn more on The Property Hub
- Join different Facebook groups investing in the area you are interested in
- Learners are Earners and Earners are Learners!
- Start gaining momentum and keep it!