How much money do I need to invest in property
CategoriesInvestor Advice

As a property investment company, one of the most common questions we are asked is “How much money do I need to invest in property?”.

Unfortunately, there is no easy answer.

The simple truth is that the amount of money required to invest in property will largely depend on the type of property you want to purchase. For example, some properties can be funded with a mortgage, meaning a lower initial cost, whilst others require a cash payment in full.

In addition, investors will need to consider other one-off upfront costs, such as stamp duty, and any ongoing costs, like mortgage payments or ground rent.

In this article, we’ll explore the costs associated with investing in each type of property.

We do recommend taking the time to read the whole article, but if you are looking for a very quick answer, then we estimate that a figure of at least £30,000 is required to start investing in the UK’s lower-priced properties. Read on to learn more and understand how (and why) this figure can change.

Property Types

The type of property can have a significant impact on the money required to invest. Not only does the type of property impact the purchase price, but it can also change how a purchase can be funded – and therefore how much initial capital is required.

In the industry, we call property types ‘Asset Classes’. The following asset classes are the most common for investors in the UK:

  • Residential accommodation
  • Serviced accommodation
  • Student accommodation
  • Care home accommodation
  • Hotel accommodation

In the following sections, we’ll look at the cost of investing in each asset class.

How much money do I need to invest in residential property?

In recent years, you may have noticed major changes to the skylines of the biggest cities in the UK. Property developers are building new, luxury apartment blocks all the time to satisfy the demand of professionals wanting to live in the city centre.

Property investors purchase properties in these residential blocks with the intention of renting them out, rather than living in the property themselves. This allows the investor to gain an income from rent each month whilst, ideally, the value of the property increases over time.

This type of residential property investment is often called ‘buy-to-let’ – simply, buying a property in order to rent it out. It is the most common form of property investment.

The lounge of a buy-to-let residential property

Upfront costs

The big benefit of the residential property asset class is that buyers can purchase using a mortgage, meaning they can get into property with a much smaller initial investment. Of course, this means taking on a debt and a requirement to meet monthly mortgage payments, but the rental income from your property should cover this (and then some).

For buy-to-let investors, 75% loan-to-value (LTV) mortgages are available. This means an investor will need a cash deposit of at least 25% of the property price.

Furthermore, the investor will need extra money for:

  • Stamp Duty Land Tax (SDLT) – in the UK, typically stamp duty is only payable on properties above £125,000. However, if a purchase means the buyer will own multiple properties, stamp duty may be due regardless of the price. You can calculate your likely SDLT using this tool. Please note that between 8 July 2020 and 31 March 2021 there is a stamp duty “holiday” which reduces SDLT for investors on properties worth less than £500,000.
  • Legal fees – a solicitor is required to do all the legal paperwork of purchasing a property. Costs depend on the property value, but usually fall between £1,000 – £2,000.
  • Buffer money – it’s always a good idea to have a little extra cash spare as a ‘buffer’. This helps cover any costs you may not have anticipated, for example purchasing furniture if the property comes unfurnished.

All in all, the amount of money needed upfront to invest in residential buy-to-let property can vary quite wildly. The table below shows how much an investor might need.

Purchase Price Mortgage Deposit (25%) Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£100,000 £25,000 £3,000 £1,000 £2,000 £31,000
£150,000 £37,500 £5,000 £1,250 £2,000 £45,750
£200,000 £50,000 £7,500 £1,500 £2,000 £61,000
£250,000 £62,500 £10,000 £1,750 £2,000 £76,250
£300,000 £75,000 £14,000 £2,000 £2,000 £93,000

Please keep in mind these are rough estimates. Also keep in mind that until March 31st 2021, investors will pay a flat SDLT rate of 3% on any property upto £500,000, potentially saving thousands (for example, SDLT on a £200,000 property will be £6,000, rather than £7,500).

The table suggests a figure just over £30,000 is enough to get started. There are certainly good buy-to-let properties in the UK around the £100,000 mark, but it should be noted this is a relatively low-value price in comparison to the average across the UK’s most popular cities (Birmingham, Leeds, London, Liverpool & Manchester). If you’re interested in learning more about average property prices, we recommend using the Land Registry’s House Price Index.

Ongoing costs

The most common ongoing costs of residential property are:

  • Mortgage repayments
  • Service charges
  • Ground rent
  • Management fees (if you want to be hands-off)
  • Maintenance costs

Combined, these could range from a few hundred pounds per month to a few thousand depending on the property, so they are not possible to predict without knowing the exact details. We advise investors to consider all potential ongoing costs and their likely impact on the net monthly rental income.

Section summary:

  • Residential property, such as luxury city centre apartments, is often purchased by private landlords for buy-to-let purposes
  • These types of purchases can be mostly funded through a mortgage
  • However, the amount of money required upfront is affected by the purchase price, stamp duty, legal fees and any additional costs like furniture.
  • As an estimate, we calculate that individuals with cash savings of over £30,000 may have the necessary funds to begin investing in residential property – although realistically you may need more than double this amount.
  • Investors should take time and care to understand all the costs involved, including mortgage repayments, plus the likely returns from rent and capital growth

How much money do I need to invest in serviced accommodation?

Serviced Accommodation is a type of property that looks and feels a lot like a residential apartment, but is marketed towards short-term lodgers, like tourists and travelling business professionals.

If managed correctly, they represent an advanced property investment strategy which allows investors to benefit from significantly higher rental yields in comparison to traditional single let models.

The key is finding residential developments that are short-term let approved. If they are, the owner can partner with a management company specialising in short-term let management. They will advertise the property on websites such as Airbnb, Booking.com and others. Renters will be charged a premium to stay.

Whilst the occupancy rate over a year will be lower, due to the nightly rate being higher, the overall cash flow (and therefore rental yield) will increase.

Such developments are quite hard to come by direct from the developer, but the pricing structure is largely similar to that of traditional residential property as purchases can be financed with mortgages, although it’s important to inform the mortgage provider or find a specialist provider.

In short, the amount of money required upfront to invest in serviced accommodation is the sum of:

  • 25% deposit (usually, not always)
  • Stamp Duty Land Tax
  • Legal Fees
  • Any extras, such as furniture

As these factors mirror residential property, we recommend referring back to the table in the section above for more information.

Section summary:

  • Serviced accommodation is an alternative form of high-quality, short-term letting for tourists, business professionals, and more.
  • Investing in this type of property is practically the same as investing in traditional residential property
  • Purchases can be financed with a mortgage, meaning a lower initial cost upfront but higher ongoing costs compared to other types of properties

How much money do I need to invest in student accommodation?

With student numbers on the rise in University cities across the UK, there is a huge demand for accommodation.

The UK’s stock of traditional student accommodation provided by Universities to students, named ‘Halls of Residence’ (or ‘Halls’ for short), simply does not have the capacity to fulfil demand. Furthermore, many students are after high-end, modern and well-located accommodation – a far cry from the run-down, damp squibs you may associate with student housing.

In short, this means many students will require alternative accommodation provided by new developments from the private sector.

Investors can purchase properties in these developments with the intention of renting it out to students. Student property investment is quickly becoming one of the most popular options for buyers.

Student accommodation

Upfront costs

Usually, student properties cannot be purchased using a mortgage, but they do generally come at a lower price than residential properties. Often, they’re below the £125,000 threshold for Stamp Duty Land Tax. You will still need to pay legal fees, however.

So, to invest in student property you will require 100% of the purchase price in cash upfront, plus money for legal fees (which is always around £1,000 on student accommodation) and a little extra to act as a buffer. The table below shows some estimates based on typical student property values.

Purchase Price Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£60,000 £0 £1,000 £2,000 £62,500
£80,000 £0 £1,000 £2,000 £82,500
£100,000 £0 £1,000 £2,000 £102,600
£120,000 £0 £1,000 £2,000 £122,700

For reference, the typical value of student properties is usually between £60,000 and £80,000. Most of our active student developments are within this range.

One thing to note on student property is that although mortgages are a no-go, developers will often offer payment plans for investors buying off-plan. Off-plan means before the development is complete, i.e. the accommodation is still being built. Almost all student developments sell out off-plan, meaning investors can snag a property at a lower initial cost using a payment plan. Payment plans usually require a deposit of 25-50% on exchange, so if we use the upper end of this range (50%), we can produce another table to reflect these costs.

Purchase Price Payment Plan Deposit (50%) Stamp Duty Land Tax Legal Fees Buffer Estimated Money Required Upfront
£60,000 £30,000 £0 £1,000 £2,000 £33,000
£80,000 £40,000 £0 £1,000 £2,000 £43,000
£100,000 £50,000 £0 £1,000 £2,000 £53,000
£120,000 £60,000 £0 £1,000 £2,000 £63,000

Finally, whilst student property can have a higher entry price compared to residential property it does offer a higher rental yield; average yields are between 8-10% where for a residential property in a city like Manchester the average yield is around 5%.

Ongoing costs

With student property, there is typically a fixed rental assurance period provided by the developers – during which all ongoing costs are covered. These periods can last a number of years, and it is only after this fixed agreement ends that a student property investor will need to consider ongoing costs.

When this time comes, the ongoing costs are similar to residential property, although do not include any mortgage repayments. This includes:

  • Service charges
  • Ground rent
  • Management fees (if you want to be hands-off)
  • Maintenance costs

Section summary:

  • Student property is in high-demand and offers exceptionally high rental yields compared to other asset classes
  • We estimate individuals with approximately £60,000 – £80,000 in cash will be able to invest in student property

How much money do I need to invest in care homes?

Unfortunately, the stock of care homes in the UK will not be enough to meet demand as our population ages.

With public funding limited, private developers are starting to build more and more care home facilities. As such, care home investment is on the rise.

This is obviously a very sensitive area, but the fact remains that the UK needs more high quality care facilities due to an ageing population. There are a number of developers who have excellent track records in not just building care homes, but maintaining and ensuring they deliver an exceptional service to the local elderly community. All care home facilities are regulated and monitored in England by the Care Quality Commission.

Similar to student property, care home properties are cash-only purchases – so you cannot use a mortgage. Due to their lower values, they are typically exempt from Stamp Duty and usually this type of property also benefits from no furniture costs, no service charges, no ground rent and no management fees.

Care homes are usually valued between £60,000 – £80,000, and as the facilities are managed end-to-end with all furniture and set-up costs included there is no need to have a little extra in reserve (i.e. no buffer required) or any need to worry about ongoing costs. As such, a care home investor will require just the full property value in cash in order to make the purchase.

Care home property

Section summary:

  • To invest in a care home, a buyer will need to the full property value in cash as there are no mortgages available for this asset class
  • Despite a higher initial outlay than residential property, investors will benefit from no stamp duty, low legal fees, no set up costs (e.g. furniture), and no ongoing costs.
  • We estimate individuals with between £60,000 to £80,000 will have the funds to invest in care home properties

How much money do I need to invest in hotels?

Another asset class for property investment is hotel accommodation. In this asset class, the business owners are typically looking to raise capital by selling individual hotel suites.

In return, they pay investors a lucrative rental yield and a contractually assured profit through a clearly defined exit strategy or buy-back agreement.

Yields are typically in the region of 10% net, with buy-backs usually offered by the developer in the fifth year and beyond. So, for any investors looking at a cash investment and a high yield it could be a good option.

Prices for hotel investment start from around £60,000 and up, with the main factor being location. This is a cash investment, i.e. purchases cannot be funded with a mortgage. As such, buyers will need the full purchase amount upfront in order to invest in hotel developments.

Hotel investments are a good, popular option for many, but nonetheless this asset class comes with a big caveat from us. It goes without saying that hotels are a business, so whilst investors will likely have a fixed return promised by the owner, it’s vital to properly assess the quality and potential of the business as a whole. Factors to consider include:

  • The asset itself
  • The developer’s plans for refurbishment, if any
  • Whether the project is a viable and sustainable structure
  • Existing (if any) and potential occupancy rates
  • Running costs
  • Net profits

Section summary:

  • Hotel accommodation is an alternative option for property investment
  • Hotel investment typically offers high rental yield and contractually assured profit
  • However, be careful to fully assess the project to ensure any contractual agreements will be kept
  • Hotel investments can not be mortgaged, so buyers will need the full purchase price in cash in order to invest. In the UK, prices at hotel developments usually start from £60,000.

To conclude

From working through the intricacies of each property type, it’s clear the amount of money a person needs in order to invest in property can change dramatically.

But at the same time, each type of property has it’s own advantages and disadvantages (you can learn more about these here).

As such, any potential investor will need to weigh up what they want to achieve from property investment alongside their available capital (i.e. how much money they have) before making a decision.

This is something we can help you with. We have years of experience in guiding new and experienced investors through the UK property market. If you’d like a free chat to learn more and ask a few questions, please get in touch.