How much cash do you need to invest in property?

Entry levels for investing in property has always been a primary barrier that’s prevents most of us investing in property. For anyone with enough spare cash property should be a no brainer as far as being part of every investors portfolio. The Quick Answer…

1. At least 25% deposit of the property you want to purchase (100% if you are a cash buyer)
2. 2%-10% of the property value in Stamp Duty depending on the property’s value
3. Approx. £2,000 for legal costs
4. £5,000 fund for unforeseen costs (surveys, additional legal, insurance, refurbishment etc…)

This quick overview will give you a rough estimate of how to budget for a property investment purchase. However, different types of assets and personal circumstances will vary in cost. First and foremost, it is vital that you establish how much Stamp Duty you will be liable to pay upon completion. Remember, there are different Stamp Duty rates for second homes and overseas buyers.

Standard Buy-to-let residential property

If you are buying a standard property which you plan to rent out to a local tenant on a long-term basis, your minimum outgoings will look something like this: 

• 75% LTV (loan to value) mortgage meaning a deposit of 25%

• Stamp Duty – if this is your only property and it is below £125,000, you may avoid this cost completely. If not, it will be between 2% - 12%, depending on property value. A full breakdown can be found here.

• Solicitor fees can vary from £1,000 - £3,000

• Mortgage Broker – Most reputable Mortgage Brokers do not charge a fee as they get paid based on commission. To get an idea of how much a mortgage will cost, check out  comparethemarket.com or Money Supermarket. Note that you may be charged a fixed fee by the Lender, which is separate from a Mortgage Broker fee.

 

Property or lease premium or transfer value	SDLT rate
Up to £125,000	0%
The next £125,000 (the portion from £125,001 to £250,000)	2%
The next £675,000 (the portion from £250,001 to £925,000)	5%
The next £575,000 (the portion from £925,001 to £1.5 million)	10%
The remaining amount (the portion above £1.5 million)	12%

  Based on these guidelines, a first-time buyer entering the market in the North of England (where property values are significantly lower) could cost you as little as £26,000 to invest in your first property if the asset is priced at £100,000.  In this scenario, you would require:

• Mortgage Deposit (25%) = £25,000
• Stamp duty (0%) = £0
• Legal fees = £1000

Total = £26,000 The cost of investing will be higher for investors with one or more properties searching for a Buy-to-Let opportunity. In this case, a more realistic property value would be around £165,000 (based on a 2-bed investment we currently offer).

• Mortgage Deposit (25%) = £41,250
• Stamp duty (2%) = £3300
• Legal fees = £2000
• Buffer = £3,000

Total = £49,550 Suppose you are looking to invest and wish to have some flexibility in what you are looking for. In that case, a budget of £50,000 cash will provide you with various investment options to grow and diversify your portfolio.

Serviced accommodation (short-term lets)

The purchase price for a serviced accommodation purchase will be mostly the same as a standard residential property; the only difference is how it operates as an investment. The ongoing costs will be higher as more management is required. There is also one additional cost of furnishings and setting up all utility bills.

• 75% LTV (loan to value) mortgage meaning a deposit of 25%

• Stamp duty – if this is your only property and it is below £125,000 then you can avoid this completely, if not then it will be 2% between 2% - 12% depending on property value, a breakdown can be found here

• Solicitor fees can vary from £1000 - £3000 but if we are looking at the lowest amount we can go for then £1000

• Furniture packs can be found from £4,000, but it is also recommended for the purpose of competition that you ensure the property has as much luxury furnishings as possible. This includes Sofas, beds, sheets duvets, kitchenware, chairs tables, cupboards. Essentially everything a tenant needs to live comfortably.

• Utility set-ups may come as part of management fees but you will see some higher costs here initially for things such as broadband and TV. Expect a few hundred pounds here.

• Photography – If you are advertising your property on AirBnB or a similar site then you will want it to stand out. Hire a professional photographer. £200 is a good estimate, and these photos should be relevant for 2 years or until you have any major redecorating.
•  

At Fabrik Invest, we currently can offer a service accommodation for around £160,000 on a 75% LTV mortgage. To give you an idea of how much it will cost to enter this type of investment, here is an overview of the minimum cost. Please note this will vary based on individual circumstances. 

• 25% deposit = £40,000
• Stamp duty 2% = £3,200
• Legals = £2,000
• Already furnished
• Already tenanted
• Management already in place

Total = £45,200 See this investment here…

PBSA (Purpose Built Student Accommodation)

Unless you are buying an HMO or a standard residential property with some intention of renting to students, then to purchase a student-only property (PBSA), you will need to make this a cash-only purchase. The UK’s PBSA market has grown exponentially over the last 10 years, offering investors a low entry level and fully managed opportunity to secure a robust rental income. Typically, investors purchase a studio or en-suite room within a purpose-built development designed to cater to students and graduates. For those looking to include a PBSA asset in their property portfolio, the lowest entry-level student apartments start from £60,000. As this type of asset tends to be cash-only, investors will need the full amount upfront to enter this type of opportunity.  Generally, PBSA apartments fall below the Stamp Duty threshold or have a zero per cent rating which means you may not be liable to pay SDLT. However, it is always best to check with your accountant or legal team before committing to the investment to establish whether you will be required to pay.  Based on a PBSA unit priced at £60,000, a typical initial investment scenario will look like this:

• Cheapest student property starts from £60,000 so you would need this whole amount

• Most of these properties are below the stamp duty threshold of £125,000 so you will not need to pay and tax.

• Legal fees still payable, £1,000 - £3,000

Total = £63,000

Additional and Unforeseen Costs

If you are approaching an investment and want to avoid as much risk as possible with your set-up costs, then it is best to give yourself a good buffer of £5,000 or more in spare cash. If your lucky or go for the right investment, then you may not need this, but it is good to have for the following reasons…  

• Stamp duty tax can change, if your in the process of buying and have not completed then the stamp duty may change

• There may be additional unforeseen legal costs

• If a property needs refurbishment, then you should approach it with those costs in mind, however there may be unseen issues such as wiring, plumbing or general issue with the building itself.

• Inflation of currency may affect costs of management and other services

• The market may affect rental value, meaning you may need to re-calculate your income

  To help investors make an informed buying decision, the property experts at Fabrik Invest offer a transparent service for investors.  Our team takes their time to get to know buyers, understanding what they want to achieve from their property purchase and how much they are willing to invest in the asset to produce their desired return on investment.    We ensure that our clients understand how much the initial investmen will cost in advance and will always provide access to the best deals through our professional property sourcing service.    To get exclusive access to the best UK property investment deals and to secure new-launch offers, join our mailing list.